Computer automation of general-to-specific model selection procedures

Disputes about econometric methodology partly reflect a lack of evidence on alternative approaches. We reconsider econometric model selection from a c omputer-automation perspective, focusing on general-to-specific reductions, embodied in PcGets. Starting from a general congruent model, standard test ing procedures eliminate statistically insignificant variables, with diagno stic tests checking the validity of reductions, ensuring a congruent final selection. Since jointly selecting and diagnostic testing has eluded theore tical analysis, we study modelling strategies by simulation. The Monte Carl o experiments show that PcGets recovers the DGP specification from a genera l model with size and power close to commencing from the DGP itself. (C) 20 01 Elsevier Science B.V. All rights reserved.