A Predictive Approach to Model Selection and Multicollinearity
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.
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- Steven Fazzari & Bruce 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.
- Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988.
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- Cooley, Thomas F & LeRoy, Stephen F, 1981. "Identification and Estimation of Money Demand," American Economic Review, American Economic Association, vol. 71(5), pages 825-44, December.
- 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.
- 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.
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