Bayesian Heteroskedasticity-Robust Standard Errors
Use of heteroskedasticity-robust standard errors has become common in frequentist regressions. I offer here a Bayesian analog. The Bayesian version is derived by first focusing on the likelihood function for the sample values of the identifying moment conditions of least squares and then formulating a convenient prior for the variances of the error terms. The first step introduces a sandwich estimator into the posterior calculations, while the second step allows the investigator to set the sandwich for either heteroskedastic or homoskedastic error variances. If desired, the Bayesian estimator can be made to look very similar to the usual heteroskedasticity-robust frequentist estimator. Bayesian estimation is easily accomplished by a standard MCMC procedure.
|Date of creation:||15 Aug 2012|
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- Anglin, Paul M & Gencay, Ramazan, 1996. "Semiparametric Estimation of a Hedonic Price Function," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 633-48, Nov.-Dec..
- White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
- James G. MacKinnon, 2012. "Thirty Years of Heteroskedasticity-Robust Inference," Working Papers 1268, Queen's University, Department of Economics.
- Geweke, J, 1993. "Bayesian Treatment of the Independent Student- t Linear Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S19-40, Suppl. De.
- Dale Poirier, 2008. "Bayesian Interpretations of Heteroskedastic Consistent Covariance Estimators Using the Informed Bayesian Bootstrap," Working Papers 080905, University of California-Irvine, Department of Economics.
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