Model Averaging and Its Use in Economics

Mark Steel

Journal of Economic Literature, 2020, vol. 58, issue 3, 644-719

Abstract: The method of model averaging has become an important tool to deal with model uncertainty, for example in situations where a large amount of different theories exist, as are common in economics. Model averaging is a natural and formal response to model uncertainty in a Bayesian framework, and most of the paper deals with Bayesian model averaging. The important role of the prior assumptions in these Bayesian procedures is highlighted. In addition, frequentist model averaging methods are also discussed. Numerical techniques to implement these methods are explained, and I point the reader to some freely available computational resources. The main focus is on uncertainty regarding the choice of covariates in normal linear regression models, but the paper also covers other, more challenging, settings, with particular emphasis on sampling models commonly used in economics. Applications of model averaging in economics are reviewed and discussed in a wide range of areas including growth economics, production modeling, finance and forecasting macroeconomic quantities.

JEL-codes: C11 C15 C20 C52 O47 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (132)

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/jel.20191385 (application/pdf)
https://www.aeaweb.org/doi/10.1257/jel.20191385.ds (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: Model Averaging and its Use in Economics (2018)
Working Paper: Model Averaging and its Use in Economics (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:jeclit:v:58:y:2020:i:3:p:644-719

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/jel.20191385

Access Statistics for this article

Journal of Economic Literature is currently edited by Steven Durlauf

More articles in Journal of Economic Literature from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().