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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. David F. Hendry, 2001. "Modelling UK inflation, 1875-1991," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 255-275.
    4. Koop,Gary & Poirier,Dale J. & Tobias,Justin L., 2007. "Bayesian Econometric Methods," Cambridge Books, Cambridge University Press, number 9780521671736, June.
    5. 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.
    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. Chan,Joshua & Koop,Gary & Poirier,Dale J. & Tobias,Justin L., 2019. "Bayesian Econometric Methods," Cambridge Books, Cambridge University Press, number 9781108437493, September.
    8. 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.
    9. Castle, Jennifer & Shephard, Neil (ed.), 2009. "The Methodology and Practice of Econometrics: A Festschrift in Honour of David F. Hendry," OUP Catalogue, Oxford University Press, number 9780199237197.
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    Cited by:

    1. Atif Maqbool Khan & Jacek Kwiatkowski & Magdalena Osińska & Marcin Błażejowski, 2021. "Factors of Renewable Energy Consumption in the European Countries—The Bayesian Averaging Classical Estimates Approach," Energies, MDPI, vol. 14(22), pages 1-24, November.
    2. Mark F. J. Steel, 2020. "Model Averaging and Its Use in Economics," Journal of Economic Literature, American Economic Association, vol. 58(3), pages 644-719, September.
    3. Magdalena Osinska & Marcin Blazejowski & Pawel Kufel & Tadeusz Kufel & Jacek Kwiatkowski, 2020. "Narrow Money Demand in Indonesia and in Other Transitional Economies – Model Selection and Forecasting," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 1291-1311.

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    More about this item

    Keywords

    BACE; gretl; model uncertainty; reduction strategy;
    All these keywords.

    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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