Priors and Posterior Computation in Linear Endogenous Variable Models with Imperfect Instruments
AbstractEstimation in models with endogeneity concerns typically begins by searching for instruments. This search is inherently subjective and identification is generally achieved upon imposing the researcher's strong prior belief that such variables have no conditional impacts on the outcome. Results obtained from such analyses are necessarily conditioned upon the untestable opinions of the researcher, and such beliefs may not be widely shared. In this paper we, like several studies in the recent literature, employ a Bayesian approach to estimation and inference in models with endogeneity concerns by imposing weaker prior assumptions than complete excludability. When allowing for instrument imperfection of this type, the model is only partially identified, and as a consequence, standard estimates obtained from the Gibbs simulations can be unacceptably imprecise. We thus describe a substantially improved \semi-analytic" method for calculating parameter marginal posteriors of interest that only requires use of the well-mixing simulations associated with the identifiable model parameters and the form of the conditional prior. Our methods are also applied in an illustrative application involving the impact of Body Mass Index (BMI) on earnings.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Australian National University, College of Business and Economics, School of Economics in its series ANU Working Papers in Economics and Econometrics with number 2012-580.
Length: 39 Pages
Date of creation: Aug 2012
Date of revision:
Find related papers by JEL classification:
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- I10 - Health, Education, and Welfare - - Health - - - General
- J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chib, Siddhartha & Hamilton, Barton H., 2002. "Semiparametric Bayes analysis of longitudinal data treatment models," Journal of Econometrics, Elsevier, vol. 110(1), pages 67-89, September.
- Gundersen, Craig & Kreider, Brent, 2008.
"Bounding the Effects of Food Insecurity on Children's Health Outcomes,"
Staff General Research Papers
13008, Iowa State University, Department of Economics.
- Gundersen, Craig & Kreider, Brent, 2009. "Bounding the effects of food insecurity on children's health outcomes," Journal of Health Economics, Elsevier, vol. 28(5), pages 971-983, September.
- Munkin, Murat K. & Trivedi, Pravin K., 2008. "Bayesian analysis of the ordered probit model with endogenous selection," Journal of Econometrics, Elsevier, vol. 143(2), pages 334-348, April.
- Koop, Gary & Poirier, Dale J., 1997. "Learning about the across-regime correlation in switching regression models," Journal of Econometrics, Elsevier, vol. 78(2), pages 217-227, June.
- Aviv Nevo & Adam M. Rosen, 2012.
"Identification With Imperfect Instruments,"
The Review of Economics and Statistics,
MIT Press, vol. 94(3), pages 659-671, August.
- Aviv Nevo & Adam M. Rosen, 2008. "Identification with Imperfect Instruments," NBER Working Papers 14434, National Bureau of Economic Research, Inc.
- Aviv Nevo & Adam Rosen, 2008. "Identification with imperfect instruments," CeMMAP working papers CWP16/08, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Kai, Li, 1998. "Bayesian inference in a simultaneous equation model with limited dependent variables," Journal of Econometrics, Elsevier, vol. 85(2), pages 387-400, August.
- Kasey Buckles & Daniel M. Hungerman, 2008.
"Season of Birth and Later Outcomes: Old Questions, New Answers,"
NBER Working Papers
14573, National Bureau of Economic Research, Inc.
- Kasey S. Buckles & Daniel M. Hungerman, 2013. "Season of Birth and Later Outcomes: Old Questions, New Answers," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 711-724, July.
- Munkin, Murat K. & Trivedi, Pravin K., 2003. "Bayesian analysis of a self-selection model with multiple outcomes using simulation-based estimation: an application to the demand for healthcare," Journal of Econometrics, Elsevier, vol. 114(2), pages 197-220, June.
- Charles F. Manski & John V. Pepper, 2000.
"Monotone Instrumental Variables, with an Application to the Returns to Schooling,"
Econometric Society, vol. 68(4), pages 997-1012, July.
- Charles F. Manski & John V. Pepper, 1998. "Monotone Instrumental Variables with an Application to the Returns to Schooling," NBER Technical Working Papers 0224, National Bureau of Economic Research, Inc.
- Charles F. Manski & John V. Pepper, 1998. "Monotone Instrumental Variables: With an Application to the Returns to Schooling," Virginia Economics Online Papers 308, University of Virginia, Department of Economics.
- Murat K. Munkin & Partha Deb & Pravin K. Trivedi, 2006. "Bayesian analysis of the two-part model with endogeneity: application to health care expenditure," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(7), pages 1081-1099.
- Brendan Kline & Justin L. Tobias, 2008. "The wages of BMI: Bayesian analysis of a skewed treatment-response model with nonparametric endogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(6), pages 767-793.
- Poirier, Dale J., 1998. "Revising Beliefs In Nonidentified Models," Econometric Theory, Cambridge University Press, vol. 14(04), pages 483-509, August.
- John Cawley, 2004. "The Impact of Obesity on Wages," Journal of Human Resources, University of Wisconsin Press, vol. 39(2).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.