Akademik Veri Yönetim Sistemi
The Theory Applications of Finance and Macroeconomics, Prof. Dr. Helmi Hamdi, Editör, MDPI Publisher Switzerland, Basel, ss.87-110, 2022
: Only unstructured single-path model selection techniques, i.e., Information Criteria, are used
by Bounds test of cointegration for model selection. The aim of this paper was twofold; one was
to evaluate the performance of these five routinely used information criteria {Akaike Information
Criterion (AIC), Akaike Information Criterion Corrected (AICC), Schwarz/Bayesian Information
Criterion (SIC/BIC), Schwarz/Bayesian Information Criterion Corrected (SICC/BICC), and Hannan and
Quinn Information Criterion (HQC)} and three structured approaches (Forward Selection, Backward
Elimination, and Stepwise) by assessing their size and power properties at different sample sizes
based on Monte Carlo simulations, and second was the assessment of the same based on real economic
data. The second aim was achieved by the evaluation of the long-run relationship between three
pairs of macroeconomic variables, i.e., Energy Consumption and GDP, Oil Price and GDP, and Broad
Money and GDP for BRICS (Brazil, Russia, India, China and South Africa) countries using Bounds
cointegration test. It was found that information criteria and structured procedures have the same
powers for a sample size of 50 or greater. However, BICC and Stepwise are better at small sample
sizes. In the light of simulation and real data results, a modified Bounds test with Stepwise model
selection procedure may be used as it is strongly theoretically supported and avoids noise in the
model selection process.