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Model simplification and variable selection: A Replication of the UK inflation model by Hendry (2001)

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  • Blazejowski, Marcin
  • Kufel, Paweł
  • Kwiatkowski, Jacek

Abstract

In this paper, we revisit the well-known UK inflation model by Hendry (Journal of Applied Econometrics 2001, 16:255-275. doi: 10.1002/jae.615). We replicate the results in a narrow sense using the gretl and PcGive programs. In a wide sense, we extend the study of model uncertainty using the Bayesian averaging of classical estimates (BACE) approach to compare model reduction strategies. Allowing for the investigation of other specifications, we confirm the same set of significant determinants but find that Hendrys' model is not the most probable.

Suggested Citation

  • Blazejowski, Marcin & Kufel, Paweł & Kwiatkowski, Jacek, 2018. "Model simplification and variable selection: A Replication of the UK inflation model by Hendry (2001)," MPRA Paper 88745, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:88745
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    References listed on IDEAS

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    1. Ley, Eduardo & Steel, Mark F.J., 2012. "Mixtures of g-priors for Bayesian model averaging with economic applications," Journal of Econometrics, Elsevier, vol. 171(2), pages 251-266.
    2. Gernot Doppelhofer & Melvyn Weeks, 2009. "Jointness of growth determinants," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(2), pages 209-244, March.
    3. Fernandez, Carmen & Ley, Eduardo & Steel, Mark F. J., 2001. "Benchmark priors for Bayesian model averaging," Journal of Econometrics, Elsevier, vol. 100(2), pages 381-427, February.
    4. David F. Hendry, 2001. "Modelling UK inflation, 1875-1991," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 255-275.
    5. Koop,Gary & Poirier,Dale J. & Tobias,Justin L., 2007. "Bayesian Econometric Methods," Cambridge Books, Cambridge University Press, number 9780521671736, June.
    6. Ley, Eduardo & Steel, Mark F.J., 2007. "Jointness in Bayesian variable selection with applications to growth regression," Journal of Macroeconomics, Elsevier, vol. 29(3), pages 476-493, September.
    7. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September.
    8. Chan,Joshua & Koop,Gary & Poirier,Dale J. & Tobias,Justin L., 2019. "Bayesian Econometric Methods," Cambridge Books, Cambridge University Press, number 9781108437493, September.
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    Cited by:

    1. Steel, Mark F. J., 2017. "Model Averaging and its Use in Economics," MPRA Paper 81568, University Library of Munich, Germany.

    More about this item

    Keywords

    BACE; gretl; model uncertainty; reduction strategy;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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