507: Model Specification Errors and Diagnostic Tests

In this lecture we try to look for answers to the following questions: 1. What are the criteria in choosing a model for empirical analysis? 2. What types of model specification errors is one likely to encounter in practice? 3. What are the consequences of specification errors? 4. What are some of the diagnostic tools that one can use? 5. Having detected specification errors, what remedies can one adopt and with what benefits? 6. How does one evaluate the performance of competing models?