Definition:
The Schwarz Criterion is a criterion for selecting among formal econometric models. The Schwarz
Criterion is a number:
T ln (RSS) + K ln(T)
The criterion is minimized over choices of K to form a tradeoff between the fit of the model (which lowers the sum of squared residuals) and the model's complexity, which is measured by K. Thus an AR(K) model versus an AR(K+1) can be compared by this criterion for a given batch of data. (Econterms)
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