The goal of this paper is to develop formal tests to evaluate the relative in-sample performance of two competing, misspecified non-nested models in the presence of possible data instability. Compared to previous approaches to model selection, which are based on measures of global performance, we focus on the local relative performance of the models. We propose three tests that are based on different measures of local performance and that correspond to different null and alternative hypotheses. The empirical application provides insights into the time variation in the performance of a representative DSGE model of the European economy relative to that of VARs.
Authors
Research Associate University College London
Raffaella is a Professor in the Department of Economics at UCL and a Senior Economist at the Federal Reserve Bank of Chicago.
ICREA Researcher Universitat Pompeu Fabra
Working Paper details
- DOI
- 10.1920/wp.cem.2012.1312
- Publisher
- IFS
Suggested citation
Giacomini, R and Rossi, B. (2012). Model comparisons in unstable environments. London: IFS. Available at: https://ifs.org.uk/publications/model-comparisons-unstable-environments (accessed: 20 April 2024).
Related documents
More from IFS
Understand this issue
Gender norms, violence and adolescent girls’ trajectories: Evidence from India
24 October 2022
Raising revenue from closing inheritance tax loopholes
18 April 2024
Sure Start achieved its aims, then we threw it away
15 April 2024
Policy analysis
ABC of SV: Limited Information Likelihood Inference in Stochastic Volatility Jump-Diffusion Models
We develop novel methods for estimation and filtering of continuous-time models with stochastic volatility and jumps using so-called Approximate Bayesian Compu- tation which build likelihoods based on limited information.
12 August 2014
Assessing the economic benefits of education: reconciling microeconomic and macroeconomic approaches
This CAYT report discusses the strengths and limitations of several approaches to assessing the effect of education on productivity.
14 March 2013
Misreported schooling, multiple measures and returns to educational qualifications
We provide a number of contributions of policy, practical and methodological interest to the study of the returns to educational qualifications in the presence of misreporting.
1 February 2012
Academic research
Understanding Society: minimising selection biases in data collection using mobile apps
2 February 2024
Robust analysis of short panels
8 January 2024
A coefficient of variation for ordered categorical data: Analyzing relative health inequality and ageing in the UK and relative human resource inequality and gender in Canada
21 December 2023