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Bayesian Model Selection with an Uninformative Prior

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Author Info

  • Rodney W. Strachan

    ()
    (Keele University, Department of Economics)

  • Herman K. van Dijk

    ()
    (Erasmus University Rotterdam)

Abstract

Bayesian model selection with posterior probabilities and no subjective prior information is generally not possible due to the Bayes factors being ill-defined. Using careful consideration of the parameter of interest in cointegration analysis and a respecifcation of the triangular model of Phillips (1991), this paper presents an approach that allows for Bayesian comparison of models of cointegration with ‘ignorance’ priors. Using the concept of Stiefel and Grassman manifolds, diffuse priors are specified on dimension and direction of the cointegrating space. The approach is illustrated using a simple term structure of interest rates model.

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Bibliographic Info

Paper provided by Centre for Economic Research, Keele University in its series Keele Economics Research Papers with number KERP 2004/01.

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Length: 19 pages
Date of creation: Jan 2004
Date of revision:
Publication status: Published in Oxford Bulletin of Economics and Statistics, Volume 65, Supplement 1, December 2003, pp. 863-876. [ doi:10.1046/j.0305-9049.2003.00095.x ]
Handle: RePEc:kee:kerpuk:2004/01

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Postal: Department of Economics, University of Keele, Keele, Staffordshire, ST5 5BG - United Kingdom
Phone: +44 (0)1782 584581
Fax: +44 (0)1782 717577
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Web page: http://www.keele.ac.uk/depts/ec/cer/
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Postal: Centre for Economic Research, Research Institute for Public Policy and Management, Keele University, Staffordshire ST5 5BG - United Kingdom
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Web: http://www.keele.ac.uk/depts/ec/cer/pubs_kerps.htm

Related research

Keywords: Posterior probability; Laplace approximation; Structural modelling; Cointegration; Exogeneity; Model averaging;

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Cited by:
  1. SILVESTRINI, Andrea, 2007. "Testing fiscal sustainability in Poland: a Bayesian analysis of cointegration," CORE Discussion Papers 2007080, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Domenico Tabasso, 2009. "Temporary Contracts and Monopsony Power in the UK Labour Market," Economics Discussion Papers 675, University of Essex, Department of Economics.
  3. Villani, Mattias, 2005. "Bayesian Inference of General Linear Restrictions on the Cointegration Space," Working Paper Series 189, Sveriges Riksbank (Central Bank of Sweden).
  4. Warne, Anders, 2006. "Bayesian inference in cointegrated VAR models: with applications to the demand for euro area M3," Working Paper Series 0692, European Central Bank.

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