Advanced Search
MyIDEAS: Login to save this paper or follow this series

Mixtures of g-priors for Bayesian model averaging with economic applications

Contents:

Author Info

  • Ley, Eduardo
  • Steel, Mark F. J.

Abstract

We examine the issue of variable selection in linear regression modeling, where we have a potentially large amount of possible covariates and economic theory offers insufficient guidance on how to select the appropriate subset. In this context, Bayesian Model Averaging presents a formal Bayesian solution to dealing with model uncertainty. Our main interest here is the effect of the prior on the results, such as posterior inclusion probabilities of regressors and predictive performance. We combine a Binomial-Beta prior on model size with a g-prior on the coefficients of each model. In addition, we assign a hyperprior to g, as the choice of g has been found to have a large impact on the results. For the prior on g, we examine the Zellner-Siow prior and a class of Beta shrinkage priors, which covers most choices in the recent literature. We propose a benchmark Beta prior, inspired by earlier findings with fixed g, and show it leads to consistent model selection. The effect of this prior structure on penalties for complexity and lack of fit is described in some detail. Inference is conducted through a Markov chain Monte Carlo sampler over model space and g. We examine the performance of the various priors in the context of simulated and real data. For the latter, we consider two important applications in economics, namely cross-country growth regression and returns to schooling. Recommendations to applied users are provided.

Download Info

If 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.
File URL: http://mpra.ub.uni-muenchen.de/36817/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36817.

as in new window
Length:
Date of creation: 23 Dec 2011
Date of revision:
Handle: RePEc:pra:mprapa:36817

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: Complexity penalty; Consistency; Model uncertainty; Posterior odds; Prediction; Robustness;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Carmen Fernández & Eduardo Ley & Mark F. J. Steel, . "Benchmark priors for Bayesian Model averaging," Working Papers 98-06, FEDEA.
  2. Carmen Fernandez & Mark F. J. Steel, 2004. "Bayesian Regression Analysis with scale mixtures of normals," ESE Discussion Papers, Edinburgh School of Economics, University of Edinburgh 27, Edinburgh School of Economics, University of Edinburgh.
  3. William A. Brock & Steven N. Durlauf & Kenneth D. West, 2003. "Policy Evaluation in Uncertain Economic Environments," NBER Working Papers 10025, National Bureau of Economic Research, Inc.
  4. Carmen Fernandez & Eduardo Ley & Mark F. J. Steel, 2001. "Model uncertainty in cross-country growth regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 16(5), pages 563-576.
  5. Li, Mingliang & Tobias, Justin, 2004. "Returns to Schooling and Bayesian Model Averaging: A Union of Two Literatures," Staff General Research Papers, Iowa State University, Department of Economics 12011, Iowa State University, Department of Economics.
  6. Martin Feldkircher & Stefan Zeugner, 2009. "Benchmark Priors Revisited:on Adaptive Shrinkage and the Supermodel Effect in Bayesian Model Averaging," IMF Working Papers 09/202, International Monetary Fund.
  7. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, American Economic Association, vol. 94(4), pages 813-835, September.
  8. Theo Eicher & Chris Papageogiou & Adrian E Raftery, 2007. "Default Priors and Predictive Performance in Bayesian Model Averaging, with Application to Growth Determinants," Working Papers, University of Washington, Department of Economics UWEC-2007-25-P, University of Washington, Department of Economics.
  9. Ciccone, Antonio & Jarocinski, Marek, 2007. "Determinants of Economic Growth: Will Data Tell?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6544, C.E.P.R. Discussion Papers.
  10. Martin Feldkircher & Stefan Zeugner, 2012. "The impact of data revisions on the robustness of growth determinants—a note on ‘determinants of economic growth: Will data tell?’," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(4), pages 686-694, 06.
  11. Gneiting, Tilmann & Raftery, Adrian E., 2007. "Strictly Proper Scoring Rules, Prediction, and Estimation," Journal of the American Statistical Association, American Statistical Association, American Statistical Association, vol. 102, pages 359-378, March.
  12. Ley, Eduardo & Steel, Mark F.J., 2008. "On the Effect of Prior Assumptions in Bayesian Model Averaging with Applications to Growth Regression," MPRA Paper 6773, University Library of Munich, Germany, revised 06 Jan 2008.
  13. David J. Nott & Robert Kohn, 2005. "Adaptive sampling for Bayesian variable selection," Biometrika, Biometrika Trust, Biometrika Trust, vol. 92(4), pages 747-763, December.
  14. Liang, Feng & Paulo, Rui & Molina, German & Clyde, Merlise A. & Berger, Jim O., 2008. "Mixtures of g Priors for Bayesian Variable Selection," Journal of the American Statistical Association, American Statistical Association, American Statistical Association, vol. 103, pages 410-423, March.
  15. Carlos M. Carvalho & Nicholas G. Polson & James G. Scott, 2010. "The horseshoe estimator for sparse signals," Biometrika, Biometrika Trust, Biometrika Trust, vol. 97(2), pages 465-480.
  16. Eduardo Ley & Mark F.J. Steel, 2009. "On the effect of prior assumptions in Bayesian model averaging with applications to growth regression This article was published online on 30 March 2009. An error was subsequently identified. This not," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 24(4), pages 651-674.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Feldkircher, Martin & Horvath, Roman & Rusnak, Marek, 2014. "Exchange market pressures during the financial crisis: A Bayesian model averaging evidence," Journal of International Money and Finance, Elsevier, Elsevier, vol. 40(C), pages 21-41.
  2. Koop, Gary & Korobilis, Dimitris, 2014. "Model Uncertainty in Panel Vector Autoregressive Models," MPRA Paper 58131, University Library of Munich, Germany.
  3. repec:dgr:uvatin:2011012 is not listed on IDEAS
  4. Koop, Gary & Tole, Lise, 2011. "Forecasting the European Carbon Market," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2011-20, Scottish Institute for Research in Economics (SIRE).
  5. Feldkircher, Martin, 2012. "The Determinants of Vulnerability to the Global Financial Crisis 2008 to 2009: Credit Growth and Other Sources of Risk," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 26/2012, Bank of Finland, Institute for Economies in Transition.
  6. Gary Koop & Lise Tole, 2013. "Forecasting the European carbon market," Journal of the Royal Statistical Society Series A, Royal Statistical Society, Royal Statistical Society, vol. 176(3), pages 723-741, 06.
  7. Aart Kraay & Norikazu Tawara, 2013. "Can specific policy indicators identify reform priorities?," Journal of Economic Growth, Springer, Springer, vol. 18(3), pages 253-283, September.
  8. repec:cam:camdae:1324 is not listed on IDEAS

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:36817. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.