  In economic applications, model averaging has found principal use examining
the validity of various theories related to observed heterogeneity in outcomes
such as growth, development, and trade.Though often easy to articulate, these
theories are imperfectly captured quantitatively. A number of different proxies
are often collected for a given theory and the uneven nature of this collection
requires care when employing model averaging. Furthermore, if valid, these
theories ought to be relevant outside of any single narrowly focused outcome
equation. We propose a methodology which treats theories as represented by
latent indices, these latent processes controlled by model averaging on the
proxy level. To achieve generalizability of the theory index our framework
assumes a collection of outcome equations. We accommodate a flexible set of
generalized additive models, enabling non-Gaussian outcomes to be included.
Furthermore, selection of relevant theories also occurs on the outcome level,
allowing for theories to be differentially valid. Our focus is on creating a
set of theory-based indices directed at understanding a country's potential
risk of macroeconomic collapse. These Sovereign Risk Indices are calibrated
across a set of different "collapse" criteria, including default on sovereign
debt, heightened potential for high unemployment or inflation and dramatic
swings in foreign exchange values. The goal of this exercise is to render a
portable set of country/year theory indices which can find more general use in
the research community.
