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Specification Search and Levels of Significance in Econometric Models

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  • Steven B. Caudill

    ()
    (Economics Department, Auburn University)

  • Randall G. Holcombe

    ()
    (Department of Economics, Florida State University)

Abstract

This paper describes the problem specification searches pose for inference, presents the results of some simulations for purposes of illustration, and uses the bootstrapping procedure to give a better estimate of statistical significance than a standard t-test. The value of the illustrations of specification searches is that they help demonstrate the severity of the problem. The examples presented here illustrate that in most cases, a researcher can undertake specification search and report a statistically significant result regardless of whether the variables in a regression equation are actually related. The bootstrap procedure used to analyze the specification searches does provide another way to examine the true statistical significance of empirical results. Two different specification searches are examined: a "drop insignificant coefficients" search and a "biggest t-ratio" search. Both are shown to lead to larger than reported standard errors. In general, standard errors get larger if a specification search has taken place, but exactly how much larger must be determined on a case-by-case basis.

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Bibliographic Info

Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 25 (1999)
Issue (Month): 3 (Summer)
Pages: 289-300

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Handle: RePEc:eej:eeconj:v:25:y:1999:i:3:p:289-300

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Cited by:
  1. Chris Doucouliagos & T.D. Stanley, 2013. "Are All Economic Facts Greatly Exaggerated? Theory Competition And Selectivity," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 27(2), pages 316-339, 04.
  2. Hristos Doucouliagos & Martin Paldam, 2012. "The robust result in meta-analysis of aid effectiveness: A response to Mekasha and Tarp," Economics Series 2012_4, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  3. Thomas Apolte, 2002. "Jurisdictional competition for quality standards: Competition of laxity?," Atlantic Economic Journal, International Atlantic Economic Society, International Atlantic Economic Society, vol. 30(4), pages 389-402, December.
  4. Joshua Gallin & Randal Verbrugge, 2007. "Improving the CPI’s Age-Bias Adjustment: Leverage, Disaggregation and Model Averaging," Working Papers, U.S. Bureau of Labor Statistics 411, U.S. Bureau of Labor Statistics.

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