Template-type: ReDIF-Paper 1.0
Author-Name: David F. Hendry
Author-Workplace-Name: Department of Economics, Oxford University, UK
Author-Name: Carlos Santos
Author-Workplace-Name: Department of Economics, Oxford University, UK
Title: Regression Models with Data-based Indicator Variables
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 tdistribution, 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.
Classification-JEL:C51, C22
Length:18 pages
Creation-Date: 2004-02-25
Number:2004-W04
File-URL: http://www.nuff.ox.ac.uk/economics/papers/2004/W4/CSDFHindicators03a.pdf
File-Format: application/pdf
Handle: RePEc:nuf:econwp:044