Regression Models with Data-based Indicator Variables

David Hendry and Carlos Santos ()

No 2004-W13, Economics Papers from Economics Group, Nuffield College, University of Oxford

Abstract: OLS estimation of an impulse-indicator coefficient is inconsistent, but its variance can be consistently estimated. Although the ratio of the inconsistent estimator to its standard error has a t-distribution, that test is inconsistent: one solution is to form an index of indicators. We provide Monte Carlo evidence that including a plethora of indicators need not distort model selection, permitting the use of many dummies in a general-to-specific framework. Although White's (1980) heteroskedasticity test is incorrectly sized in that context, we suggest an improvement. Finally, a possible modification to impulse intercept corrections is considered.

JEL-codes: C22 C51 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2004-11-03
New Economics Papers: this item is included in nep-ecm
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Related works:
Journal Article: Regression Models with Data‐based Indicator Variables (2005)
Working Paper: Regression Models with Data-based Indicator Variables (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:nuf:econwp:0413

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