The Encompassing Principle and its Application to Testing Non-Nested Hypotheses

Mizon, Grayham E.; Richard, Jean‐François

doi:10.2307/1911313

Cited by 545 publications

(241 citation statements)

References 28 publications

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“…Several tests exist; for a recent review, see Pesaran and Weeks (2000). In connection with money demand equations, the tradition has been to construct the so-called Minimal Nesting Model (MNM) nesting the two alternative models (see Mizon and Richard, 1986), and carry out the testing within that model. In this case, the MNM is an additive STR model (Eitrheim and Teräsvirta, 1996;Teräsvirta 1998b) with two transition functions:…”

Section: Results Of the Encompassing Testsmentioning

confidence: 99%

Non‐linear error correction and the UK demand for broad money, 1878–1993

Teräsvirta

Eliasson

2001

J of Applied Econometrics

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SUMMARYIn this paper we reconsider an error-correction model of UK broad money demand by Ericsson, Hendry and Prestwich. Their model is non-linear in both variables and parameters, and it can be viewed as an approximation to a smooth transition regression (STR) type specification. The corresponding STR model, when specified and estimated, fits the data better than the original model. Adopting a somewhat more general modelling approach leads to another STR model. This model variance dominates the other two, and the encompassing tests performed in this paper indicate that it is an improvement over the other two specifications.

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Section: Results Of the Encompassing Testsmentioning

confidence: 99%

Non‐linear error correction and the UK demand for broad money, 1878–1993

Teräsvirta

Eliasson

2001

J of Applied Econometrics

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“…The general-to-specific approach was proposed originally by Davidson et al (1978) and modified subsequently by Hendry and von Ungern-Sternberg (1981) and Mizon and Richard (1986), but full development of the generalto-specific modelling approach has taken place only recently (see Hendry, 1995). This approach starts with a general dynamic ADLM, which includes all potentially influential factors with a sufficient lag structure.…”

Section: Model Estimationmentioning

confidence: 99%

Tourism Demand Modelling and Forecasting: How Should Demand Be Measured?

et al. 2010

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Tourist arrivals and tourist expenditure, in both aggregate and per capita forms, are commonly used measures of tourism demand in empirical research. This study compares these two measures in the context of econometric modelling and the forecasting of tourism demand. The empirical study focuses on demand for Hong Kong tourism by residents of Australia, the UK and the USA. Using the general-to-specific modelling approach, key determinants of tourism demand are identified based on different demand measures. In addition, the forecasting accuracy of these demand measures is examined. It is found that tourist arrivals in Hong Kong are influenced mainly by tourists' income and 'word-of-mouth'/habit persistence effects, while the tourism price in Hong Kong relative to that of the tourist origin country is the most important determinant of tourist expenditure in Hong Kong. Moreover, the aggregate tourism demand models outperform the per capita models, with aggregate expenditure models being the most accurate. The implications of these findings for tourism decision making are that the choice of demand measure for forecasting models should depend on whether the objective of the decision maker is to maximize tourist arrivals or expenditure (receipts), and also that the models should be specified in aggregate form.

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“…This suggests that the linear model is misspecified. We have therefore used an encompassing test that is appropriate to apply to testing non-nested hypotheses (Mizon and Richard, 1986). The encompassing test shows that for moves to owning the loglinear model is statistically superior to the linear model.…”

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confidence: 99%

New Evidence of the Effect of Transaction Costs on Residential Mobility*

Ommeren¹,

Leuvensteijn²

2005

J Regional Sci

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Abstract. Transaction costs have attracted considerably attention in the theoretical literature on residential mobility. In many European countries, these costs mainly consist of ad-valorem transaction costs. In the current paper, we demonstrate empirically for the Netherlands that the transaction costs have a strong negative effect on the owners' probability of moving. Under a range of different specifications, it appears that a one percent-point increase in the value of transaction costs -as a percentage of the value of the residence -decreases ownership to ownership residential mobility rates by eight percent. The estimates imply that ownership to ownership mobility rates would be 50 percent higher in the absence of the current six percent ad-valorem buyer transaction tax. Our estimates are consistent with the observation that in the Netherlands ad-valorem transaction costs mainly consist of buyer transaction costs.

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The Encompassing Principle and its Application to Testing Non-Nested Hypotheses

Cited by 545 publications

References 28 publications

Non‐linear error correction and the UK demand for broad money, 1878–1993

Non‐linear error correction and the UK demand for broad money, 1878–1993

Tourism Demand Modelling and Forecasting: How Should Demand Be Measured?

New Evidence of the Effect of Transaction Costs on Residential Mobility*

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