Advanced Search
MyIDEAS: Login

Model selection in the presence of nonstationarity

Contents:

Author Info

  • Kim, Jae-Young
Registered author(s):

    Abstract

    This paper studies model selection methods in the presence of nonstationarity. We focus on the Bayesian model selection rule and compare it with other criteria that are frequently used in econometric practice. First, we derive each of these criteria in the presence of nonstationarity. In particular, we study the Bayesian model selection rule in detail and derive three alternative forms of it in the presence of nonstationarity. One important feature of the Bayesian model selection criterion (BMSC) is that BMSC gives different weights to the stationary and nonstationary components of a model while the other criteria do not. This feature of BMSC is a desirable property for a model selection rule in the presence of possible nonstationarity. Second, we compare these criteria with regard to parsimony and power. We have found that BMSC shows the highest parsimony, AIC is the second, and Cp and R̄2, having the same level of parsimony, are the third. With regard to power, the order is not clearly established. However, for the size adjusted power BMSC becomes dominant as the sample size increases. Without size adjustment the order in the power is exactly the opposite to that in parsimony. Also, we find that BMSC is a consistent selection rule while the other criteria are not. Third, we consider four different cases of practical interest for which BMSC with some of the other criteria is applicable. We discuss how our BMSC can be used in these cases of practical interest. Results of an extensive Monte Carlo simulation for models in these four cases show that overall the BMSC outperforms other criteria.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.sciencedirect.com/science/article/pii/S0304407612000395
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Econometrics.

    Volume (Year): 169 (2012)
    Issue (Month): 2 ()
    Pages: 247-257

    as in new window
    Handle: RePEc:eee:econom:v:169:y:2012:i:2:p:247-257

    Contact details of provider:
    Web page: http://www.elsevier.com/locate/jeconom

    Related research

    Keywords: Model selection; Nonstationarity; Bayesian rule; Parsimony; Power;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Han Hong & Bruce Preston & Matthew Shum, 2001. "Empirical Likelihood-Based Selection Criteria for Moment Condition Models," Economics Working Paper Archive 459, The Johns Hopkins University,Department of Economics.
    2. Geweke, John F & Meese, Richard, 1981. "Estimating Regression Models of Finite but Unknown Order," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(1), pages 55-70, February.
    3. Peter C.B. Phillips & Werner Ploberger, 1992. "Posterior Odds Testing for a Unit Root with Data-Based Model Selection," Cowles Foundation Discussion Papers 1017, Cowles Foundation for Research in Economics, Yale University.
    4. David J. Spiegelhalter & Nicola G. Best & Bradley P. Carlin & Angelika van der Linde, 2002. "Bayesian measures of model complexity and fit," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 64(4), pages 583-639.
    5. Donald W. K. Andrews, 1999. "Consistent Moment Selection Procedures for Generalized Method of Moments Estimation," Econometrica, Econometric Society, vol. 67(3), pages 543-564, May.
    6. Sims, Christopher A., 1988. "Bayesian skepticism on unit root econometrics," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 463-474.
    7. Chao, John C. & Phillips, Peter C. B., 1999. "Model selection in partially nonstationary vector autoregressive processes with reduced rank structure," Journal of Econometrics, Elsevier, vol. 91(2), pages 227-271, August.
    8. Amemiya, Takeshi, 1980. "Selection of Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(2), pages 331-54, June.
    9. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Universite de Montreal, Departement de sciences economiques.
    10. Cavanaugh, Joseph E., 1999. "A large-sample model selection criterion based on Kullback's symmetric divergence," Statistics & Probability Letters, Elsevier, vol. 42(4), pages 333-343, May.
    11. Phillips, Peter C B, 1996. "Econometric Model Determination," Econometrica, Econometric Society, vol. 64(4), pages 763-812, July.
    12. Hong, Han & Preston, Bruce & Shum, Matthew, 2003. "Generalized Empirical Likelihood Based Model Selection Criteria For Moment Condition Models," Econometric Theory, Cambridge University Press, vol. 19(06), pages 923-943, December.
    13. Phillips, Peter C B & Ploberger, Werner, 1996. "An Asymptotic Theory of Bayesian Inference for Time Series," Econometrica, Econometric Society, vol. 64(2), pages 381-412, March.
    14. Chao, J. C. & Phillips, P. C. B., 1998. "Posterior distributions in limited information analysis of the simultaneous equations model using the Jeffreys prior," Journal of Econometrics, Elsevier, vol. 87(1), pages 49-86, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eee:econom:v:169:y:2012:i:2:p:247-257. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.