Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5099005 | Journal of Economic Dynamics and Control | 2010 | 21 Pages |
Abstract
This paper shows that the R2 and the standard error have fatal flaws and are inadequate accuracy tests. Using data from a Krusell-Smith economy, I show that approximations for the law of motion of aggregate capital, for which the true standard deviation of aggregate capital is up to 14% (119%) higher than the implied value and which are thus clearly inaccurate, can have an R2 as high as 0.9999 (0.99). Key in generating a more powerful test is that predictions of the aggregate law of motion are not updated with the aggregated simulated individual data.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Wouter J. Den Haan,