Model fit and model selection

Narayana Kocherlakota

Review, 2007, vol. 89, issue Jul, 349-360

Abstract: This paper uses an example to show that a model that fits the available data perfectly may provide worse answers to policy questions than an alternative, imperfectly fitting model. The author argues that, in the context of Bayesian estimation, this result can be interpreted as being due to the use of an inappropriate prior over the parameters of shock processes. He urges the use of priors that are obtained from explicit auxiliary information, not from the desire to obtain identification.

Keywords: Econometric models; Macroeconomics (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (8)

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