Econometrics: What is parsimony?

The principle of parsimony suggests that as general rule, a regression model as simple should be kept as minimalistic as possible. If a substantial amount of the variation in the independent variable Y can be explained by a few variables, then it is not necessary to add variables as a matter of course. The error term will account for these minimal exclusions.

The logic is to start at a core set of explanatory variables and only add to this selection if a substantial amount of variation has not been explained by this collection of regressors.

Of course, if there is a variable which theoretically seems likely to exert a significant impact on the independent variable, Y, then of course this should be included.

Find us on facebook:

https://www.facebook.com/corkschoolofeconomics

Check out our World-Class Econometrics courses here:

https://www.globalschoolofeconomics.com

Leave a Comment

Your email address will not be published. Required fields are marked *

one × one =

0