Recent Developments in the Theory of Encompassing

David F. Hendry, Jean-Francois Richard
Duke University

Dec 31 1987

The paper surveys and discuses recent contributions on the notion of (parametric) encompassing, whereby a model is required to account for salient features of rival models. Both asymptotic and finite sample versions of encompassing are examined. A class of Wald encompassing tests is applied to various examples, including the choice of regressors problem. Linear dynamic models are formally analyzed and the treatment of exogenous variables in the construction of encompassing tests in discussed. A notion of parsimonious-encompassing is examined and its properties are discussed within the information matrix framework. Finally, Bayesian notions of encompassing and specificity are analyzed.


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