Regression Models with Data-based Indicator Variables
Ordinary least squares estimation of an impulse-indicator coefficient is inconsistent, but its variance can be consistently estimated. Although the ratio of the inconsistent estimator to its standard error has a "t"-distribution, that test is inconsistent: one solution is to form an index of indicators. We provide Monte Carlo evidence that including a plethora of indicators need not distort model selection, permitting the use of many dummies in a general-to-specific framework. Although <link rid="b22">White's (1980)</link> heteroskedasticity test is incorrectly sized in that context, we suggest an easy alteration. Finally, a possible modification to impulse 'intercept corrections' is considered. Copyright 2005 Blackwell Publishing Ltd.
Year of publication: |
2005
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Authors: | Hendry, David F. ; Santos, Carlos |
Published in: |
Oxford Bulletin of Economics and Statistics. - Department of Economics, ISSN 0305-9049. - Vol. 67.2005, 5, p. 571-595
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Publisher: |
Department of Economics |
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