tailieunhanh - Handbook of Econometrics Vols1-5 _ Chapter 26

Chapter 26 FUNCTIONAL FORMS IN ECONOMETRIC MODEL BUILDING Compatibility of the criteria for the selection of functional forms Incompatibility of a global domain of applicability and flexibility Incompatibility of computational facility and factual conformity Incompatibility of a global domain of applicability, flexibility and computational facility | Chapter 26 FUNCTIONAL FORMS IN ECONOMETRIC MODEL BUILDING LAWRENCE J. LAU Stanford University Contents 1. Introduction 2. Criteria for the selection of functional forms . Theoretical consistency . Domain of applicability . Flexibility . Computational facility . Factual conformity 3. Compatibility of the criteria for the selection of functional forms . Incompatibility of a global domain of applicability and flexibility . Incompatibility of computational facility and factual conformity . Incompatibility of a global domain of applicability flexibility and 1516 1520 1520 1527 1539 1545 1546 1547 1548 1551 computational facility 4. Concluding remarks Appendix 1 References 1552 1558 1559 1564 The author wishes to thank Kenneth Arrow Erwin Diewert Zvi Griliches Dale Jorgenson and members of the Econometrics Seminar at the Department of Economics Stanford University for helpful comments and discussions. Financial support for this research under grant SOC77-11105 from the National Science Foundation is gratefully acknowledged. Responsibility for errors remains with the author. Handbook of Econometrics Volume III Edited by Z. Griliches and . Intriligator Elsevier Science Publishers BV 1986 1516 L. J. Lau 1. Introduction Econometrics is concerned with the estimation of relationships among observable and sometimes even unobservable variables. Any relationship to be estimated is almost always assumed to be stochastic. However the relationship is often specified in such a way that it can be decomposed into a deterministic and a stochastic part. The deterministic part is often represented as a known algebraic function of observable variables and unknown parameters. A typical economic relationship to be estimated may take the form y X a e where y is the observed value of the dependent variable X is the observed value of the vector of independent variables a is a finite vector of unknown constant parameters and e is a stochastic disturbance term. The .