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A Predictive Approach to Model Selection and Multicollinearity

Author

Listed:
  • Edward Greenberg

    (Washington University)

  • Robert P. Parks

    (Washington University)

Abstract

We argue for the adoption of a predictive approach to model specification. Specifically, we derive the difference between means and the ratio of determinants of covariance matrices when a subset of explanatory variables is included or excluded from a regression. For several special cases these measures are shown to be related to widely used tools for studying model specification. Results for a set of simulated data and for two economic applications are presented as examples.

Suggested Citation

  • Edward Greenberg & Robert P. Parks, 1993. "A Predictive Approach to Model Selection and Multicollinearity," Econometrics 9308001, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpem:9308001
    Note: Latex document, 30 pages (22 without figures)
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    References listed on IDEAS

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    1. Zellner, Arnold, 1981. "Posterior odds ratios for regression hypotheses : General considerations and some specific results," Journal of Econometrics, Elsevier, vol. 16(1), pages 151-152, May.
    2. Zellner, Arnold, 1978. "Jeffreys-Bayes posterior odds ratio and the Akaike information criterion for discriminating between models," Economics Letters, Elsevier, vol. 1(4), pages 337-342.
    3. Steven Fazzari & Bruce C. Petersen, 1990. "Investment smoothing with working capital: new evidence on the impact of financial constraints," Working Paper Series, Macroeconomic Issues 90-18, Federal Reserve Bank of Chicago.
    4. Cooley, Thomas F & LeRoy, Stephen F, 1981. "Identification and Estimation of Money Demand," American Economic Review, American Economic Association, vol. 71(5), pages 825-844, December.
    5. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    6. Amemiya, Takeshi, 1980. "Selection of Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(2), pages 331-354, June.
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    Citations

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    Cited by:

    1. Ben F. M. Wijnen & Iris Mosweu & Marian H. J. M. Majoie & Leone Ridsdale & Reina J. A. Kinderen & Silvia M. A. A. Evers & Paul McCrone, 2018. "A comparison of the responsiveness of EQ-5D-5L and the QOLIE-31P and mapping of QOLIE-31P to EQ-5D-5L in epilepsy," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 19(6), pages 861-870, July.
    2. Panaretos, John & Psarakis, Stelios & Xekalaki, Evdokia & Karlis, Dimitris, 2005. "The Correlated Gamma-Ratio Distribution in Model Evaluation and Selection," MPRA Paper 6355, University Library of Munich, Germany.
    3. Sanchez-Ruiz, Paul & Maldonado-Bautista, Ileana & Rutherford, Matthew, 2018. "Business stressors, family-business identity, and divorce in family business: A vulnerability-stress-adaptation (VSA) model," Journal of Family Business Strategy, Elsevier, vol. 9(3), pages 167-179.
    4. Jerayr J. Haleblian & Michael D. Pfarrer & Jason T. Kiley, 2017. "High-Reputation Firms and Their Differential Acquisition Behaviors," Strategic Management Journal, Wiley Blackwell, vol. 38(11), pages 2237-2254, November.
    5. Wijnen, Ben F.M. & Mosweu, Iris & Majoie, Marian H.J.M. & Ridsdale, Leone & de Kinderen, Reina J.A. & Evers, Silvia M.A.A. & McCrone, Paul, 2018. "A comparison of the responsiveness of EQ-5D-5L and the QOLIE-31P and mapping of QOLIE-31P to EQ-5D-5L in epilepsy," LSE Research Online Documents on Economics 106170, London School of Economics and Political Science, LSE Library.
    6. Andrew B. Whitford, 2007. "Competing Explanations for Bureaucratic Preferences," Journal of Theoretical Politics, , vol. 19(3), pages 219-247, July.

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    More about this item

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

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