ABSTRACT
As a result of our discussions in Chapter 4, we noticed that the model selection has been playing a significant role in econometric model building. In this regard, a number of different procedures were reviewed in sections 4.2 and 4.3. The literature review of Chapter 4 reveals that the IC-based procedures are the most popular and useful procedures. IC procedures are based on choosing the model with the largest maximized log of the likelihood function minus a penalty term where the models with larger numbers of parameters are penalized more heavily than the models with smaller numbers of parameters. There is nonetheless little agreement about what the form of the penalty function should be.
