Journal Article

Model fit and model selection

Abstract: This paper uses an example to show that a model that fits the available data perfectly may provide worse answers to policy questions than an alternative, imperfectly fitting model. The author argues that, in the context of Bayesian estimation, this result can be interpreted as being due to the use of an inappropriate prior over the parameters of shock processes. He urges the use of priors that are obtained from explicit auxiliary information, not from the desire to obtain identification.

Status: Published in Proceedings of the Thirty-First Annual Economic Policy Conference of the Federal Reserve Bank of St. Louis : Frontiers in Monetary Policy Research

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Review

Publication Date: 2007

Volume: 89

Issue: Jul