Model Selection in Under-specified Equations Facing Breaks
AbstractAlthough a general unrestricted model may under-specify the data generation process, especially when breaks occur, model selection can still improve over estimating a prior specification.� Impulse-indicator saturation (IIS) can 'correct' non-constant intercepts induced by location shifts in omitted variables, which surprisingly leave slope parameters unaltered even when correlated with included variables.� However, location shifts in included variables do induce changes in slopes where there are correlated omitted variables.� IIS acts as a 'robust method' when models are mis-specified, and helps mitigate the adverse impacts of induced location shifts on non-constant intercepts and equation standard errors.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 509.
Date of creation: 01 Oct 2010
Date of revision:
Model selection; mis-specification; location shifts; impulse-indicator saturation; costs of search; costs of inferencee; Autometrics;
Other versions of this item:
- Castle, Jennifer L. & Hendry, David F., 2014. "Model selection in under-specified equations facing breaks," Journal of Econometrics, Elsevier, vol. 178(P2), pages 286-293.
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-13 (All new papers)
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- Jennifer Castle & David Hendry, 2011.
"Model Selection in Equations with Many 'Small' Effects,"
Economics Series Working Papers
528, University of Oxford, Department of Economics.
- Jennifer L. Castle & Jurgen A. Doornik & David F. Hendry, 2013. "Model Selection in Equations with Many ‘Small’ Effects," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 75(1), pages 6-22, 02.
- Jennifer L. Castle & Jurgen A. Doornik & David F. Hendry, 2012. "Model Selection in Equations with Many 'Small' Effects," Working Paper Series 53_12, The Rimini Centre for Economic Analysis.
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