Skip to main content
Review logo

Our most academic publication offers research and surveys on monetary policy, national and international developments, banking, and more. The content is written for an economically informed readership—from the undergraduate student to the PhD.

Vol. 89, No. 4 (Posted 2007-07-01)

Model Fit and Model Selection

by Narayana Kocherlakota

This paper uses an example to show that a model that fits the available data perfectly may provide worse answers to policy questions than an alternative, imperfectly fitting model. The author argues that, in the context of Bayesian estimation, this result can be interpreted as being due to the use of an inappropriate prior over the parameters of shock processes. He urges the use of priors that are obtained from explicit auxiliary information, not from the desire to obtain identification.

Cite this article

Subscribe to our newsletter

Follow us

Twitter logo Google Plus logo Facebook logo YouTube logo LinkedIn logo
Back to Top