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Empirical Model Discovery and Theory EvaluationAutomatic Selection Methods in Econometrics$
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David F. Hendry and Jurgen A. Doornik

Print publication date: 2014

Print ISBN-13: 9780262028356

Published to MIT Press Scholarship Online: January 2015

DOI: 10.7551/mitpress/9780262028356.001.0001

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General-to-specific Modeling

General-to-specific Modeling

Chapter:
(p.97) 7 General-to-specific Modeling
Source:
Empirical Model Discovery and Theory Evaluation
Author(s):

David F. Hendry

Jurgen A. Doornik

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262028356.003.0007

After noting a variety of extant approaches to automatic model selection, we consider the six main stages in formulating and implementing a Gets approach to model discovery. First, a careful formulation of the general unrestricted model (GUM) for the problem under analysis is essential. Second, the measure of congruence must be decided by choosing the mis-specification tests to be used, their forms, and significance levels. Third, the desired null rejection frequencies for selection tests must be set, together with an information criterion to select between mutually encompassing, undominated, congruent models. Fourth, the GUM needs to be appropriately estimated, depending on the weak exogeneity assumptions about the conditioning variables, which then allows congruence to be assessed. Given that is satisfactory, multiplepath reduction searches can be commenced from the GUM, leading to a set (possibly with just one member) of terminal models. These can then be checked for parsimonious encompassing of the GUM. The reliability of the whole process can be investigated by exploring sub-sample outcomes, and simulating the entire selection approach.

Keywords:   General-to-specific, general unrestricted model, congruence, mis-specification tests, encompassing, exogeneity

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