Variable Selection using Non-Standard Optimisation of Information Criteria
AbstractThe question of variable selection in a regression model is a major open research topic in econometrics. Traditionally two broad classes of methods have been used. One is sequential testing and the other is information criteria. The advent of large datasets used by institutions such as central banks has exacerbated this model selection problem. This paper provides a new solution in the context of information criteria. The solution rests on the judicious selection of a subset of models for consideration using nonstandard optimisation algorithms for information criterion minimisation. In particular, simulated annealing and genetic algorithms are considered. Both a Monte Carlo study and an empirical forecasting application to UK CPI infation suggest that the new methods are worthy of further consideration.
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Bibliographic InfoPaper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 533.
Date of creation: May 2005
Date of revision:
Simulated Annealing; Genetic Algorithms; Information criteria; Model selection; Forecasting; Inflation;
Find related papers by JEL classification:
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-05-23 (All new papers)
- NEP-CMP-2005-05-23 (Computational Economics)
- NEP-ECM-2005-05-23 (Econometrics)
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- Kapetanios, G. & Labhard, V. & Price, S., 2007.
"Forecasting using Bayesian and information theoretic model averaging: an application to UK inflation,"
07/15, Department of Economics, City University London.
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- Kapetanios, George, 2007. "Variable selection in regression models using nonstandard optimisation of information criteria," Computational Statistics & Data Analysis, Elsevier, vol. 52(1), pages 4-15, September.
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