Being Focused: When the Purpose of Inference Matters for Model Selection

RUHR Economic Paper No. 264

24 Pages Posted: 1 Jul 2011

See all articles by Holger Dette

Holger Dette

Ruhr University of Bochum - Faculty of Mathematics

Manuel Frondel

RWI Leibniz Institute for Economic Research ; Ruhr University Bochum (RUB)

Peter Behl

Ruhr University of Bochum

Harald Tauchmann

Rhine-Westphalia Institute for Economic Research (RWI-Essen)

Date Written: 2011

Abstract

In contrast to conventional model selection criteria, the Focused Information Criterion (FIC) allows for purpose-specific choice of models. This accommodates the idea that one kind of model might be highly appropriate for inferences on a particular parameter, but not for another. Ever since its development, the FIC has been increasingly applied in the realm of statistics, but this concept appears to be virtually unknown in the economic literature. Using a classical example and data for 35 U.S. industry sectors (1960–2005), this paper provides for an illustration of the FIC and a demonstration of its usefulness in empirical applications.

Keywords: Information Criteria, translog cost function, cross-price elasticities

JEL Classification: C3, D2

Suggested Citation

Dette, Holger and Frondel, Manuel and Behl, Peter and Tauchmann, Harald, Being Focused: When the Purpose of Inference Matters for Model Selection (2011). RUHR Economic Paper No. 264, Available at SSRN: https://ssrn.com/abstract=1876347 or http://dx.doi.org/10.2139/ssrn.1876347

Holger Dette

Ruhr University of Bochum - Faculty of Mathematics ( email )

Universitatsstr. 150
D-44780 Bochum
Germany
+ 49 234 700 3284 (Phone)
+ 49 234 7094 559 (Fax)

Manuel Frondel (Contact Author)

RWI Leibniz Institute for Economic Research ( email )

Hohenzollernstr. 1-3
45128 Essen
Germany

Ruhr University Bochum (RUB) ( email )

Universitätsstraße 150
Bochum, NRW 44780
Germany

Peter Behl

Ruhr University of Bochum ( email )

Universitätsstrasse 150
Bochum, NRW 44780
Germany

Harald Tauchmann

Rhine-Westphalia Institute for Economic Research (RWI-Essen) ( email )

Hohenzollernstr. 1-3
45128 Essen
Germany

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