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Bayesian Model Selection with an Uninformative Prior

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  • Rodney W. Strachan
  • Herman K. Dijk

Abstract

Bayesian model selection with posterior probabilities and no subjective prior information is generally not possible because of the Bayes factors being ill-defined. Using careful consideration of the parameter of interest in cointegration analysis and a re-specification of the triangular model of Phillips ("Econometrica", Vol. 59, pp. 283-306, 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 the dimension and direction of the cointegrating space. The approach is illustrated using a simple term structure of the interest rates model. Copyright 2003 Blackwell Publishing Ltd.

Suggested Citation

  • Rodney W. Strachan & Herman K. Dijk, 2003. "Bayesian Model Selection with an Uninformative Prior," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(s1), pages 863-876, December.
  • Handle: RePEc:bla:obuest:v:65:y:2003:i:s1:p:863-876
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    References listed on IDEAS

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    1. Strachan, R.W. & van Dijk, H.K., 2003. "The value of structural information in the VAR model," Econometric Institute Research Papers EI 2003-17, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
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    Cited by:

    1. Villani, Mattias, 2005. "Bayesian Inference of General Linear Restrictions on the Cointegration Space," Working Paper Series 189, Sveriges Riksbank (Central Bank of Sweden).
    2. Warne, Anders, 2006. "Bayesian inference in cointegrated VAR models: with applications to the demand for euro area M3," Working Paper Series 692, European Central Bank.
    3. Andrea Silvestrini, 2010. "Testing fiscal sustainability in Poland: a Bayesian analysis of cointegration," Empirical Economics, Springer, vol. 39(1), pages 241-274, August.
    4. Rodney W. Strachan & Herman K. van Dijk, 2014. "Divergent Priors and Well Behaved Bayes Factors," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 6(1), pages 1-31, March.
    5. Sugita, Katsuhiro, 2006. "Bayesian Analysis of Dynamic Multivariate Models with Multiple Structural Breaks," Discussion Papers 2006-14, Graduate School of Economics, Hitotsubashi University.

    More about this item

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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