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CHALLENGES FOR ECONOMETRIC MODEL SELECTION

Published online by Cambridge University Press:  08 February 2005

Bruce E. Hansen
Bruce E. Hansen
Affiliation:
University of Wisconsin
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Abstract

Standard econometric model selection methods are based on four conceptual errors: parametric vision, the assumption of a true data generating process, evaluation based on fit, and ignoring the impact of model uncertainty on inference. Instead, econometric model selection methods should be based on a semiparametric vision, models should be viewed as approximations, models should be evaluated based on their purpose, and model uncertainty should be incorporated into inference methods. These problems have been examined individually but not jointly, and my view is that future research into econometric model selection should attempt to address all four issues.This research was supported by the National Science Foundation. I thank Peter Phillips and a referee for helpful comments that greatly improved the arguments and exposition.

Type
Research Article
Information
Econometric Theory , Volume 21 , Issue 1 , February 2005 , pp. 60 - 68
Copyright
© 2005 Cambridge University Press

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