On the constancy of time-series econometric equations
Item Type:Journal Article
Citation:Hendry, David F. 'On the constancy of time-series econometric equations'. - Economic & Social Review, Vol. 27, No. 5, October, 1996, pp. 401-422, Dublin: Economic & Social Research Institute
27 oct 96 hendry.pdf (Published (publisher's copy) - Peer Reviewed) 1.192Mb
Parameter constancy is a fundamental requirement for empirical models to be useful for forecasting, analysing economic policy, or testing economic theories. However, there are surprises in defining a constant-parameter model, such that models with time-varying coefficients, and expansion of the parameterisation over time are both compatible with constancy, yet unbiased forecasts may not entail a sensible model choice. In-sample tests cannot determine likely post-sample predictive failure. A comparison of two models of UK money demand illustrates the analysis empirically, as one suffers considerable predictive failure yet the other does not, despite being identical in-sample.
Author: Hendry, David F.
Publisher:Economic & Social Studies
Type of material:Journal Article
Availability:Full text available