Economics at your fingertips  

Model Selection for Explosive Models

Yubo Tao () and Jun Yu ()

No 6-2016, Economics and Statistics Working Papers from Singapore Management University, School of Economics

Abstract: This paper examines the limit properties of information criteria for distinguishing between the unit root model and the various kinds of explosive models. The information criteria include AIC, BIC, HQIC. The explosive models include the local-to-unit-root model, the mildly explosive model and the regular explosive model. Initial conditions with different order of magnitude are considered. Both the OLS estimator and the indirect inference estimator are studied. It is found that BIC and HQIC, but not AIC, consistently select the unit root model when data come from the unit root model. When data come from the local-to-unit-root model, both BIC and HQIC select the wrong model with probability approaching 1 while AIC has a positive probability of selecting the right model in the limit. When data come from the regular explosive model or from the mildly explosive model in the form of 1+n^{\alpha}/n with \alpha \in (0; 1), all three information criteria consistently select the true model. Indirect inference estimation can increase or decrease the probability for information criteria to select the right model asymptotically relative to OLS, depending on the information criteria and the true model. Simulation results confirm our asymptotic results in finite sample.

Keywords: Model Selection; Information Criteria; Local-to-unit-root Model; Mildly Explosive Model; Unit Root Model; Indirect Inference. (search for similar items in EconPapers)
Pages: 32 pages
Date: 2016-03-29
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-sea
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link) ... context=soe_research Full text (application/pdf)

Related works:
Chapter: Model Selection for Explosive Models (2020) Downloads
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:

Access Statistics for this paper

More papers in Economics and Statistics Working Papers from Singapore Management University, School of Economics 90 Stamford Road, Sigapore 178903. Contact information at EDIRC.
Bibliographic data for series maintained by Cheong Pei Qi ().

Page updated 2020-10-26
Handle: RePEc:ris:smuesw:2016_006