Next Article in Journal
Time-Varying Window Length for Correlation Forecasts
Previous Article in Journal
Synthetic Control and Inference
Article Menu

Export Article

Open AccessArticle
Econometrics 2017, 5(4), 53; doi:10.3390/econometrics5040053

Reducing Approximation Error in the Fourier Flexible Functional Form

Department of Agricultural and Resource Economics, College of Agriculture and Bioresources, Agriculture Building, University of Saskatchewan, Rm 3D24, Saskatoon, SK S7N 5A8, Canada
Academic Editor: Marc S. Paolella
Received: 29 August 2017 / Revised: 16 November 2017 / Accepted: 22 November 2017 / Published: 4 December 2017
View Full-Text   |   Download PDF [1494 KB, uploaded 4 December 2017]   |  

Abstract

The Fourier Flexible form provides a global approximation to an unknown data generating process. In terms of limiting function specification error, this form is preferable to functional forms based on second-order Taylor series expansions. The Fourier Flexible form is a truncated Fourier series expansion appended to a second-order expansion in logarithms. By replacing the logarithmic expansion with a Box-Cox transformation, we show that the Fourier Flexible form can reduce approximation error by 25% on average in the tails of the data distribution. The new functional form allows for nested testing of a larger set of commonly implemented functional forms. View Full-Text
Keywords: Fourier series; Box-Cox; functional form selection; specification bias Fourier series; Box-Cox; functional form selection; specification bias
Figures

Figure 1

This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

Share & Cite This Article

MDPI and ACS Style

Skolrud, T.D. Reducing Approximation Error in the Fourier Flexible Functional Form. Econometrics 2017, 5, 53.

Show more citation formats Show less citations formats

Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Related Articles

Article Metrics

Article Access Statistics

1

Comments

[Return to top]
Econometrics EISSN 2225-1146 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
Back to Top