A COMPARISON OF COMPLEMENTARY AUTOMATIC MODELING METHODS: RETINA AND PcGets

Teodosio Pérez-Amaral, Giampiero Gallo () and Halbert White

Econometric Theory, 2005, vol. 21, issue 1, 262-277

Abstract: In Perez-Amaral, Gallo, and White (2003, Oxford Bulletin of Economics and Statstics 65, 821–838), the authors proposed an automatic predictive modeling tool called relevant transformation of the inputs network approach (RETINA). It is designed to embody flexibility (using nonlinear transformations of the predictors of interest), selective search within the range of possible models, control of collinearity, out-of-sample forecasting ability, and computational simplicity. In this paper we compare the characteristics of RETINA with PcGets, a well-known automatic modeling method proposed by David Hendry. We point out similarities, differences, and complementarities of the two methods. In an example using U.S. telecommunications demand data we find that RETINA can improve both in- and out-of-sample over the usual linear regression model and over some models suggested by PcGets. Thus, both methods are useful components of the modern applied econometrician's automated modeling tool chest.

Date: 2005
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