Template-type: ReDIF-Paper 1.0
Author-Name: David F. Hendry
Author-Email: david.hendry@economics.ox.ac.uk
Author-Workplace-Name: Economcis Department, University of Oxford
Author-Name: Carlos Santos
Author-Email: carlos.santos@economics.ox.ac.uk
Author-Workplace-Name: Economics Department, University of Oxford
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 t-distribution, 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:2004-11-03
Number: 2004-W13
File-URL: http://www.nuff.ox.ac.uk/economics/papers/2004/w13/CSDFHindicators03a.pdf
File-Format: application/pdf
Handle: RePEc:nuf:econwp:0413