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Econometrics: Alchemy or Science?Essays in Econometric Methodology$
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David F. Hendry

Print publication date: 2000

Print ISBN-13: 9780198293545

Published to Oxford Scholarship Online: November 2003

DOI: 10.1093/0198293542.001.0001

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An Empirical Application and Monte Carlo Analysis of Tests of Dynamic Specification

An Empirical Application and Monte Carlo Analysis of Tests of Dynamic Specification

Chapter:
(p.146) 7 An Empirical Application and Monte Carlo Analysis of Tests of Dynamic Specification
Source:
Econometrics: Alchemy or Science?
Author(s):

David F. Hendry (Contributor Webpage)

Grayham E. Mizon

Publisher:
Oxford University Press
DOI:10.1093/0198293542.003.0008

COMFAC is employed as a sequential simplification device in empirical analysis. Analysis of the finite‐sample statistical properties checked the power when a COMFAC representation of economic agents’ behaviour was valid. Improved test power response surfaces were proposed. Combined, the findings suggested using other model reduction devices, retaining COMFAC as a destructive testing device for invalid ‘autocorrelation correction’ claims. Diagnostic testing of the initial model was emphasized. Model selection (lag length, choice of simplification, and parameter) is investigated for highly seasonal data.

Keywords:   COMFAC, consumer durables, demand, diagnostic testing, model reduction, model selection, test power response surfaces

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