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Learning About Models And Their Fit To Data

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Author Info
ADRIAN PAGAN

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Abstract

The paper asks what is the most informative way of assessing the fit of a model to data. Often an answer comes from the context. In particular, from a consideration of how the model is to be used. Such information often leads one to seek transformations of the data that deliver the requisite information. Even in those instances in which we are sure of the best way of looking at fit, e.g. by the mean of the sample scores of an alternative model, it is often useful to augment the information provided by these tests through a decomposition of them. In time series such decompositions have often involved recursive analysis. In this paper we propose that the moments underlying tests be re-written as an integrated conditional moment, where the conditioning variable is chosen to elicit useful information. The idea is potentially useful in assessing non-linear models. To implement the aproach non-parametric methods generally need to be applied to simulated data in order to perform the decomposition. A range of applications of the idea, drawn from published articles, is used to illustrate the advantages of the method. [C10]

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Publisher Info
Article provided by Korean International Economic Association in its journal International Economic Journal.

Volume (Year): 16 (2002)
Issue (Month): 2 (June)
Pages: 1-18
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Handle: RePEc:taf:intecj:v:16:y:2002:i:2:p:1-18

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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.:

  1. Henry, Olan T & Olekalns, Nilss & Summers, Peter M, 2001. "Exchange Rate Instability: A Threshold Autoregressive Approach," The Economic Record, The Economic Society of Australia, vol. 77(237), pages 160-66, June. [Downloadable!] (restricted)
  2. Yacine Ait-Sahalia, 1995. "Testing Continuous-Time Models of the Spot Interest Rate," NBER Working Papers 5346, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Pagan, Adrian R. & Schwert, G. William, 1990. "Alternative models for conditional stock volatility," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 267-290. [Downloadable!] (restricted)
    Other versions:
  4. Bodman, Philip M, 1998. "Asymmetry and Duration Dependence in Australian GDP and Unemployment," The Economic Record, The Economic Society of Australia, vol. 74(227), pages 399-411, December.
  5. Horowitz, Joel L., 1993. "Semiparametric estimation of a work-trip mode choice model," Journal of Econometrics, Elsevier, vol. 58(1-2), pages 49-70, July. [Downloadable!] (restricted)
  6. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November. [Downloadable!] (restricted)
  7. Pagan, Adrian, 1996. "The econometrics of financial markets," Journal of Empirical Finance, Elsevier, vol. 3(1), pages 15-102, May. [Downloadable!] (restricted)
  8. Jacquier, Eric & Polson, Nicholas G & Rossi, Peter E, 1994. "Bayesian Analysis of Stochastic Volatility Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 371-89, October.
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Cited by:
(explanations, 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.)

  1. Daniel Buncic, 2009. "Understanding forecast failure of ESTAR models of real exchange rates," EERI Research Paper Series EERI_RP_2009_18, Economics and Econometrics Research Institute (EERI). [Downloadable!]
  2. Sebastian Edwards & Javier Gómez Biscarri & Fernando Pérez de Gracia, 2003. "Stock Market Cycles, Financial Liberalization and Volatility," Faculty Working Papers 08/03, School of Economics and Business Administration, University of Navarra. [Downloadable!]
    Other versions:
  3. Buncic, Daniel, 2009. "Understanding forecast failure of ESTAR models of real exchange rates," MPRA Paper 16525, University Library of Munich, Germany. [Downloadable!]
  4. Hyginus Leon & Serineh Najarian, 2005. "Asymmetric adjustment and nonlinear dynamics in real exchange rates," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(1), pages 15-39. [Downloadable!]
  5. Daniel Buncic, 2008. "A Note on Long Horizon Forecasts of Nonlinear Models of Real Exchange Rates: Comments on Rapach and Wohar (2006)," Discussion Papers 2008-02, School of Economics, The University of New South Wales. [Downloadable!]
    Other versions:
  6. Buncic, Daniel, 2009. "Understanding forecast failure in ESTAR models of real exchange rates," MPRA Paper 13121, University Library of Munich, Germany. [Downloadable!]
  7. Serineh Najarian & H. L. Leon, 2003. "Time-Varying Thresholds: An Application to Purchasing Power Parity," IMF Working Papers 03/181, International Monetary Fund. [Downloadable!]
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