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Data Mining Reconsidered: Encompassing And The General-To-Specific Approach To Specification Search

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  • Kevin D. Hoover
  • Stephen J. Perez

Abstract

The effectiveness of one aspect of the London School of Economics (LSE) approach to econometrics is assessed in a simulation study. The paper uses a data set and nine models analogous to those in Lovell's (1983) study of data mining. A simplified general-to-specific algorithm is tested in a simulation framework. While the study documents some of the pitfalls of the general-to-specific approach, it is, on the whole, supportive of the effectiveness of the LSE methodology as applied to stationary data with relatively simple dynamics. The general-to-specific methodology clearly dominates the alternative search methodologies investigated by Lovell.

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Paper provided by California Davis - Department of Economics in its series Department of Economics with number 97-27.

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Handle: RePEc:fth:caldec:97-27

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  1. Lovell, Michael C, 1983. "Data Mining," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 1-12, February.
  2. Hansen, Bruce E, 1996. "Methodology: Alchemy or Science: Review Article," Economic Journal, Royal Economic Society, vol. 106(438), pages 1398-1413, September.
  3. Peter C.B. Phillips, 1988. "Reflections on Econometric Methodology," Cowles Foundation Discussion Papers 893, Cowles Foundation for Research in Economics, Yale University.
  4. Dolado, Juan J & Jenkinson, Tim & Sosvilla-Rivero, Simon, 1990. " Cointegration and Unit Roots," Journal of Economic Surveys, Wiley Blackwell, vol. 4(3), pages 249-73.
  5. Li, Hongyi & Maddala, G. S., 1997. "Bootstrapping cointegrating regressions," Journal of Econometrics, Elsevier, vol. 80(2), pages 297-318, October.
  6. Campbell, J.Y. & Perron, P., 1991. "Pitfalls and Opportunities: What Macroeconomics should know about unit roots," Papers 360, Princeton, Department of Economics - Econometric Research Program.
  7. Hendry, David F. & Richard, Jean-Francois, 1982. "On the formulation of empirical models in dynamic econometrics," Journal of Econometrics, Elsevier, vol. 20(1), pages 3-33, October.
  8. Mayer, Thomas, 1980. "Economics as a Hard Science: Realistic Goal or Wishful Thinking?," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 165-78, April.
  9. McAleer, Michael & Pagan, Adrian, 1985. "What Will Take the Con Out of Econometrics?," CEPR Discussion Papers 39, C.E.P.R. Discussion Papers.
  10. Stock, James H & Watson, Mark W, 1988. "Variable Trends in Economic Time Series," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 147-74, Summer.
  11. Hendry, D.F. & Richard, J.-F., 1987. "Recent developments in the theory of encompassing," CORE Discussion Papers 1987022, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. Gilbert, Christopher L, 1986. "Professor Hendry's Econometric Methodology," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 283-307, August.
  13. Neil R. Ericsson & Julia Campos & Hong-Anh Tran, 1991. "PC-give and David Hendry's econometric methodology," International Finance Discussion Papers 406, Board of Governors of the Federal Reserve System (U.S.).
  14. Leamer, Edward E, 1985. "Sensitivity Analyses Would Help," American Economic Review, American Economic Association, vol. 75(3), pages 308-13, June.
  15. Pagan, Adrian, 1987. " Three Econometric Methodologies: A Critical Appraisal," Journal of Economic Surveys, Wiley Blackwell, vol. 1(1), pages 3-24.
  16. Hoover, Kevin D, 1988. "On the Pitfalls of Untested Common-Factor Restrictions: The Case of the Inverted Fisher Hypothesis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 50(2), pages 125-38, May.
  17. Anindya Banerjee, 1994. "Dynamic Specification and Testing for Unit Roots and Co-Integration," Working Papers 914, Queen's University, Department of Economics.
  18. Mizon, Grayham E & Richard, Jean-Francois, 1986. "The Encompassing Principle and Its Application to Testing Non-nested Hypotheses," Econometrica, Econometric Society, vol. 54(3), pages 657-78, May.
  19. Gregory D. Hess & Christopher S. Jones & Richard D. Porter, 1994. "The predictive failure of the Baba, Hendry and Starr model of the demand for M1 in the United States," Finance and Economics Discussion Series 94-34, Board of Governors of the Federal Reserve System (U.S.).
  20. Hendry, David F & Mizon, Grayham Ernest, 1985. "Procrustean Econometrics: Stretching and Squeezing Data," CEPR Discussion Papers 68, C.E.P.R. Discussion Papers.
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