Parameter orthogonalization and Bayesian inference with many instruments
It is examined how Bayesian inference might proceed in models with many instruments. A new prior specification based on Lancaster's (1997) parameter orthogonalization is developed. This orthogonalization is shown to guarantee that the statistical problems associated with the first stage coefficients are not carried over in estimating the parameter of interest.
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- Maddala, G S, 1976. "Weak Priors and Sharp Posteriors in Simultaneous Equation Models," Econometrica, Econometric Society, vol. 44(2), pages 345-51, March.
- Bekker, Paul A, 1994. "Alternative Approximations to the Distributions of Instrumental Variable Estimators," Econometrica, Econometric Society, vol. 62(3), pages 657-81, May.
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