Published online by Cambridge University Press: 09 March 2010
Introduction
An important objective in econometric modelling is to obtain congruent and encompassing models, which are thus consistent with data evidence and economic theory, and are capable of explaining the behaviour of rival models for the same economic phenomena. Hendry (1995) and Mizon (1995b) inter alia present this view of modelling, as well as recording that a general-to-simple modelling strategy is an efficient way to isolate congruent models. Indeed such a modelling strategy requires the models under consideration to be thoroughly tested and progressively evaluated within a sequence of nested hypotheses, so that each model not rejected in the process is a valid simplification of (i.e. parsimoniously encompasses) all models more general than it in the sequence. Models arrived at as the limit of the reduction process therefore contain all relevant information available in the initial models, thus rendering the latter inferentially redundant. Testing the ability of models to parsimoniously encompass more general ones, thus ensuring that no information is lost in the reduction process, creates a partially ordered sequence of models. Further, Lu and Mizon (1997) point out that the intermediate models considered while testing the parsimonious encompassing ability of models in a nested sequence are mutually encompassing models and hence observationally equivalent to each other. Note, though, that there is an important distinction between observational equivalence in the population and in a sample, which may contain weak evidence.
To save this book to your Kindle, first ensure [email protected] is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.
Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.
Find out more about the Kindle Personal Document Service.
To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.
To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.