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Working Paper
An analogue model of phase-averaging procedures
This paper considers the statistical and econometric effect that fixed n-period phase-averaging has on time series generated by some simple dynamic processes. We focus on the variance and autocorrelation of the data series and of the disturbance term for levels and difference equations involving the phase-average data. Further, we examine the effect of phase-averaging on the erogeneity of variables in those equations and the implications phase-averaging has for conducting statistical inference. ; To illustrate our analytical results, we investigate claims by Friedman and Schwartz in their ...
Working Paper
Cointegration tests in the presence of structural breaks
Structural breaks in stationary time series can induce apparent unit roots in those series. Thus, using recently developed recursive Monte Carlo techniques, this paper investigates the properties of several cointegration tests when the marginal process of one of the variables in the cointegrating relationship is stationary with a structural break. The break has little effect on the tests' size. However, tests based on estimated error correction models generally are more powerful than Engle and Granger's two-step procedure employing the Dickey-Fuller unit root test. Discrepancies in power ...
Working Paper
Constructive data mining: modeling consumers' expenditure in Venezuela
Hoover and Perez (1999) advocate a constructive approach to data mining. The current paper identifies four pejorative senses of data mining and shows how Hoover and Perez's approach counters each. To assess the benefits of constructive data mining, the current paper applies a data-mining algorithm similar to Hoover and Perez's to a dataset for Venezuelan consumers' expenditure. The selected model is economically sensible and statistically satisfactory; and it illustrates how data can be highly informative, even with relatively few observations. Limitations to algorithmically based data mining ...
Working Paper
Econometric modeling of consumers' expenditure in Venezuela
Starting from a theoretical model with optimizing economic agents, we develop a highly parsimonious econometric model of consumers' expenditure on non-durables and services in Venezuela for 1970-85. Disposable income, liquidity, and inflation determine expenditure in an economically sensible fashion. The empirical model is robust and has constant, well-determined parameter estimates. In specifying it, econometric methodology plays a fundamental role, and we address issues of empirical model design and evaluation, cointegration, exogeneity, policy analysis, and encompassing. Using the last ...
Working Paper
General-to-specific modeling: an overview and selected bibliography
This paper discusses the econometric methodology of general-to-specific modeling, in which the modeler simplifies an initially general model that adequately characterizes the empirical evidence within his or her theoretical framework. Central aspects of this approach include the theory of reduction, dynamic specification, model selection procedures, model selection criteria, model comparison, encompassing, computer automation, and empirical implementation. This paper thus reviews the theory of reduction, summarizes the approach of general-to-specific modeling, and discusses the econometrics ...
Working Paper
PC-give and David Hendry's econometric methodology
This paper summarizes David Hendry's empirical econometric methodology, unifying discussions in many of his and his co-authors' papers. Then, we describe how Hendry's suite of computer programs PC-GIVE helps users implement that methodology. Finally, we illustrate that methodology and the programs with three empirical examples: postwar narrow money demand in the United Kingdom, nominal income determination in the United Kingdom from Friedman and Schwartz (1982), and consumers' expenditure in Venezuela. These examples help clarify the methodology's central concepts, which include ...