Regression Models with Data-based Indicator Variables.

Working paper

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) heteroskedast...

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Authors: Hendry, D; Santos, C

• Publisher: Nuffield College (University of Oxford)
• Series: Economics Working Papers
• Publication date: 2004-01-01
• Language: English