Model Averaging and Its Use in Economics
Journal of Economic Literature
no. 3, September 2020
The method of model averaging has become an important tool to deal with model uncertainty, for example
in situations where a large amount of different theories exist, as are common in economics. Model averaging
is a natural and formal response to model uncertainty in a Bayesian framework, and most of the paper deals
with Bayesian model averaging. The important role of the prior assumptions in these Bayesian procedures is
highlighted. In addition, frequentist model averaging methods are also discussed. Numerical techniques to
implement these methods are explained, and I point the reader to some freely available computational
resources. The main focus is on uncertainty regarding the choice of covariates in normal linear regression
models, but the paper also covers other, more challenging, settings, with particular emphasis on sampling
models commonly used in economics. Applications of model averaging in economics are reviewed and
discussed in a wide range of areas including growth economics, production modeling, finance and
forecasting macroeconomic quantities.
Steel, Mark F J.
"Model Averaging and Its Use in Economics."
Journal of Economic Literature,
Bayesian Analysis: General
Statistical Simulation Methods: General
Single Equation Models; Single Variables: General
Model Evaluation, Validation, and Selection
Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence