A heuristic criterion for choosing an acceptable level of bias in ridge regression is presented. The criterion is based on a noncentral F-test of the stochastic restrictions implicit in the ridge estimator. An appropriate significance level for the test is based on conjunctive use of strong and...

Statistical procedures are developed for reducing the number of autonomous state variables in stochastic dynamic optimization models when these variables follow a stationary process over time. These methods essentially delete part of the information upon which decisions are based while...