tut8 model selection
DESCRIPTION
Explains issues of model selection for your econometric modelTRANSCRIPT
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ECON321Economic Analysis
Tutorial 8
Model selection
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Introduction
• When you estimate multiple regression models the issues of over-fitting or under-fitting the model become important. Remember:o Start with the theory.o Draw on your experience.o Check what others have done.o Estimate the model and evaluate the results.
Look at the signs of the coefficients, the t-ratios, R2 and adjusted R2.
o Use the F-test to decide between restricted and unrestricted models.
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Introduction
• This tutorial demonstrates the use of the Ramsey RESET test of model specification.
• This is a general test to detect functional form misspecification.
• And we use another version of the house price data to demonstrate how it can help you to choose between a level-level or log-log model.
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Now that you know how to test the model specification, the following tutorial will show you how to test for multicollinearity.
Save your workfile and continue…