Priors and Posterior Computation in Linear Endogenous Variable Models with Imperfect Instruments
Estimation in models with endogeneity concerns typically begins by searching for instruments. This search is inherently subjective and identification is generally achieved upon imposing the researcher's strong prior belief that such variables have no conditional impacts on the outcome. Results obtained from such analyses are necessarily conditioned upon the untestable opinions of the researcher, and such beliefs may not be widely shared. In this paper we, like several studies in the recent literature, employ a Bayesian approach to estimation and inference in models with endogeneity concerns by imposing weaker prior assumptions than complete excludability. When allowing for instrument imperfection of this type, the model is only partially identified, and as a consequence, standard estimates obtained from the Gibbs simulations can be unacceptably imprecise. We thus describe a substantially improved \semi-analytic" method for calculating parameter marginal posteriors of interest that only requires use of the well-mixing simulations associated with the identifiable model parameters and the form of the conditional prior. Our methods are also applied in an illustrative application involving the impact of Body Mass Index (BMI) on earnings.
|Date of creation:||Aug 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +61 2 6125 3807
Fax: +61 2 6125 0744
Web page: http://rse.anu.edu.au/
More information through EDIRC
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.:
- Gundersen, Craig & Kreider, Brent, 2009.
"Bounding the effects of food insecurity on children's health outcomes,"
Journal of Health Economics,
Elsevier, vol. 28(5), pages 971-983, September.
- Gundersen, Craig & Kreider, Brent, 2008. "Bounding the Effects of Food Insecurity on Children's Health Outcomes," Staff General Research Papers 13008, Iowa State University, Department of Economics.
- Kai, Li, 1998. "Bayesian inference in a simultaneous equation model with limited dependent variables," Journal of Econometrics, Elsevier, vol. 85(2), pages 387-400, August.
- Aviv Nevo & Adam M. Rosen, 2012.
"Identification With Imperfect Instruments,"
The Review of Economics and Statistics,
MIT Press, vol. 94(3), pages 659-671, August.
- Aviv Nevo* & Adam Rosen, 2008. "Identification with imperfect instruments," CeMMAP working papers CWP16/08, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Aviv Nevo & Adam M. Rosen, 2008. "Identification with Imperfect Instruments," NBER Working Papers 14434, National Bureau of Economic Research, Inc.
- Murat K. Munkin & Partha Deb & Pravin K. Trivedi, 2006. "Bayesian analysis of the two-part model with endogeneity: application to health care expenditure," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(7), pages 1081-1099.
- Munkin, Murat K. & Trivedi, Pravin K., 2003. "Bayesian analysis of a self-selection model with multiple outcomes using simulation-based estimation: an application to the demand for healthcare," Journal of Econometrics, Elsevier, vol. 114(2), pages 197-220, June.
- Charles F. Manski & John V. Pepper, 2000.
"Monotone Instrumental Variables, with an Application to the Returns to Schooling,"
Econometric Society, vol. 68(4), pages 997-1012, July.
- Charles F. Manski & John V. Pepper, 1998. "Monotone Instrumental Variables with an Application to the Returns to Schooling," NBER Technical Working Papers 0224, National Bureau of Economic Research, Inc.
- Charles F. Manski & John V. Pepper, 1998. "Monotone Instrumental Variables: With an Application to the Returns to Schooling," Virginia Economics Online Papers 308, University of Virginia, Department of Economics.
- Chib, Siddhartha & Hamilton, Barton H., 2002. "Semiparametric Bayes analysis of longitudinal data treatment models," Journal of Econometrics, Elsevier, vol. 110(1), pages 67-89, September.
- Kasey Buckles & Daniel M. Hungerman, 2008.
"Season of Birth and Later Outcomes: Old Questions, New Answers,"
NBER Working Papers
14573, National Bureau of Economic Research, Inc.
- Kasey S. Buckles & Daniel M. Hungerman, 2013. "Season of Birth and Later Outcomes: Old Questions, New Answers," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 711-724, July.
- Brendan Kline & Justin L. Tobias, 2008. "The wages of BMI: Bayesian analysis of a skewed treatment-response model with nonparametric endogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(6), pages 767-793.
- Poirier, Dale J., 1998. "Revising Beliefs In Nonidentified Models," Econometric Theory, Cambridge University Press, vol. 14(04), pages 483-509, August.
- Munkin, Murat K. & Trivedi, Pravin K., 2008. "Bayesian analysis of the ordered probit model with endogenous selection," Journal of Econometrics, Elsevier, vol. 143(2), pages 334-348, April.
- John Cawley, 2004. "The Impact of Obesity on Wages," Journal of Human Resources, University of Wisconsin Press, vol. 39(2).
- Koop, Gary & Poirier, Dale J., 1997. "Learning about the across-regime correlation in switching regression models," Journal of Econometrics, Elsevier, vol. 78(2), pages 217-227, June.
When requesting a correction, please mention this item's handle: RePEc:acb:cbeeco:2012-580. 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: ()
If references are entirely missing, you can add them using this form.