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# TES SPESIFIKASI

V E N T Y AS L AB E K O N O M E T R I K A D E S E M B E R 2 0 1 2

SIMULASI
Assume that Qx is only a function of Px and Income Generate 200 data of Px, Py, INC, and Error via random draw Generate log(Qx)= 0.50.5*log(Px)+0.5*log(INC)+Error Run log(Qx)=f[log(Px), log(INC)] The parameter will be closer to the assigned values, as the number of draws increase

1. Redundent: Run: log(Qx)=f[log(Px), log(INC), log(Py)] 2. Ommited Run: log(Qx)=f[log(Px)} 3. Regression through origin
A: ln(Qx)=f(Px, INC), B: ln(Qx)=f(Px, Py, INC), C: ln(Qx)=f(ln(Px),ln(INC)) D: ln(Qx)=f(ln(Px),ln(Py), ln(INC)) 4. Nested: redundent vs ommited: A Vs B, or C Vs D 5. non-nested: beda fungsi persamaan : A vs C or B vs D

## NESTED: RAMSEYS RESET

If adding this proxy variable leads to significant increase in adjusted R square, the regression contains misspecification Stata estat ovtest H0: No misspecification error H1: Model contains specification error

## NON-NESTED (1): MIZON RICHARD (WALD TEST)

A: ln(Qx)=f(Px, INC) or C: ln(Qx)=f(ln(Px),ln(INC))
Test using Wald Ln(Qx) =B0 + B1*Px + B2*INC + B3*ln(Px) + B4*ln(INC) + e

## NON-NESTED (1): DAVIDSON-

MCKINNON

A: ln(Qx)=f(Px, INC) C: ln(Qx)=f(ln(Px), ln(INC)) Steps: to test if Spec A is correct: 1.Run Spec C, get predicted value, say Z1 2.Run Spec A by adding Z1 into the equation If Z1 is insignificant, then A is correctly specified We can also perform the test in the other direction; 1.Run Spec A, get predicted value, say Z2 2.Run Spec C by adding Z2 into the equation If Z2 is insignificant, then C is correctly specified

SELECTION CRITERIA
According to Hendry and Richard (1983), a model chosen for empirical analysis should satisfy the following criteria: Admissible (prediction made from the model must be logically possible) Consistent with theory: Make economic good sense Have weakly exogenous explanatory variables: Regressors are uncorrelated with the error terms

Constancy: The values of the parameters should be stable. In other word, the parameter values obtained using within sample observation should not deviate significantly from outside sample observation. Coherency: Residuals estimated from the model must be purely random Encompassing: No other model explains better

## EVALUATION OF COMPETING MODELS

Three statistics for model evaluation criteria available in most econometric software are; Adjusted R-SquaredChoose model that generates the highest Adjusted R squared Akaike Information Criterion Choose model that generates the smallest AIC Schwarzs Bayesian Information Criterion Choose model that generates the smallest SIC
Stata : estat ic