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Bayesian methods in economics and finance: A unified survey and taxonomy

Author

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  • Kumbhakar, Subal C.
  • Mallick, Sushanta K.

Abstract

This special issue brings together 21 papers that reflect the expanding scope and methodological evolution of Bayesian econometrics. We introduce a new organizing taxonomy that distinguishes between Traditional Bayesian Approaches - rooted in conjugate priors, standard likelihood-based estimation, and established Markov Chain Monte Carlo (MCMC) techniques - and Contemporary Bayesian Frontiers, characterized by nonparametric methods, variational inference, high-dimensional shrinkage, and integration with machine learning. We further classify contributions across two broad domains covering applications in Economics (focusing on macroeconomics, microeconomics, and climate econometrics) and Finance (focusing on asset pricing, volatility, and bank business models). Across these fields, four cross-cutting themes emerge: (1) high-dimensionality, volatility, and time-varying dynamics; (2) structural identification and model uncertainty; (3) semiparametric and nonparametric flexibility; and (4) data quality, granularity, and novel data structures. This survey synthesizes the methodological and empirical contributions of the special issue, proposes a unifying framework for organizing recent advances in Bayesian econometrics, and identifies unresolved challenges and promising directions for future research.

Suggested Citation

  • Kumbhakar, Subal C. & Mallick, Sushanta K., 2026. "Bayesian methods in economics and finance: A unified survey and taxonomy," Journal of Econometrics, Elsevier, vol. 256(PB).
    • Handle: RePEc:eee:econom:v:256:y:2026:i:pb:s0304407626000904
    DOI: 10.1016/j.jeconom.2026.106269
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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: 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
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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