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On the Use of Holdout Samples for Model Selection

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  • Frank Schorfheide
  • Kenneth I. Wolpin

Abstract

Researchers often hold out data from the estimation of econometric models to use for external validation. However, the use of holdout samples is suboptimal from a Bayesian perspective, which prescribes using the entire sample to form posterior model weights. This paper examines a possible rationale for the use of holdout samples: data-inspired modifications of structural models are likely to lead to an exaggeration of model fit. The use of holdout samples can, in principle, set an incentive for the modeler not to exaggerate model fit.

Suggested Citation

  • Frank Schorfheide & Kenneth I. Wolpin, 2012. "On the Use of Holdout Samples for Model Selection," American Economic Review, American Economic Association, vol. 102(3), pages 477-481, May.
  • Handle: RePEc:aea:aecrev:v:102:y:2012:i:3:p:477-81
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.3.477
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    References listed on IDEAS

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    1. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, September.
    2. Frank Schorfheide, 2000. "Loss function-based evaluation of DSGE models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(6), pages 645-670.
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    Cited by:

    1. Emrah Arbak, 2017. "Identifying the provisioning policies of Belgian banks," Working Paper Research 326, National Bank of Belgium.
    2. Emrah Arbak, 2017. "Identifying the provisioning policies of Belgian banks," Working Paper Research 326, National Bank of Belgium.
    3. Cepeda Carrión, Gabriel & Henseler, Jörg & Ringle, Christian M. & Roldán, José Luis, 2016. "Prediction-oriented modeling in business research by means of PLS path modeling: Introduction to a JBR special section," Journal of Business Research, Elsevier, vol. 69(10), pages 4545-4551.
    4. Schorfheide, Frank & Wolpin, Kenneth I., 2016. "To hold out or not to hold out," Research in Economics, Elsevier, pages 332-345.
    5. repec:sbe:breart:v:35:y:2015:i:2:a:57574 is not listed on IDEAS

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