2005/09/27 by David F. Hendry, Carlos Santos
Economics, Econometrics and Finance · Mathematics · #Advanced Statistical Methods and Models #Fiscal Policy and Economic Growth #Monetary Policy and Economic Impact
paper · doi:10.1111/j.1468-0084.2005.00132.x
openalex publication_date 2005/09/27 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/29
Abstract Ordinary least squares 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 easy alteration. Finally, a possible modification to impulse ‘intercept corrections’ is considered.