Chapter 13 Model selection: Criteria and Tests
Chapter 13 Model Selection: Criteria and Tests
One clrm assumption is: The model used in empirical analysis is correctly specified
One CLRM assumption is: The model used in empirical analysis is “correctly specified
Correct specification"of a model means No theoretically relevant variable has been excluded from the model No unnecessary or irrelevant variables are included in the model The functional form of the model is correct
No theoretically relevant variable has been excluded from the model. No unnecessary or irrelevant variables are included in the model. The functional form of the model is correct “Correct specification ”of a model means:
13.1 The Attributes of a good model Criteria to judge a model: Principle of parsimony A model should be kept as simple as possible 2. Identifiability For a given set of data the estimated parameters must have unique values 3. Goodness of fit Model is judged good by the higher adjusted R(=R2)
13.1 The Attributes of a Good Model ——Criteria to judge a model: 1. Principle of parsimony A model should be kept as simple as possible. 2. Identifiability For a given set of data the estimated parameters must have unique values 3. Goodness of fit. Model is judged good by the higher adjusted R2 (= ) 2 R
4.Theoretical consistency In constructing a model we should have some theoretical underpinning 5. Predictive power Choose the model whose theoretical predictions are borne out by actual experience
4. Theoretical consistency In constructing a model we should have some theoretical underpinning 5. Predictive power Choose the model whose theoretical predictions are borne out by actual experience