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On the shape of posterior densities and credible sets in instrumental variable regression models with reduced rank: an application of flexible sampling methods using neural networks

  • Hoogerheide, L.F.
  • Kaashoek, J.F.
  • van Dijk, H.K.

Likelihoods and posteriors of instrumental variable regression models with strong endogeneity and/or weak instruments may exhibit rather non-elliptical contours in the parameter space. This may seriously affect inference based on Bayesian credible sets. When approximating such contours using Monte Carlo integration methods like importance sampling or Markov chain Monte Carlo procedures the speed of the algorithm and the quality of the results greatly depend on the choice of the importance or candidate density. Such a density has to be `close' to the target density in order to yield accurate results with numerically efficient sampling. For this purpose we introduce neural networks which seem to be natural importance or candidate densities, as they have a universal approximation property and are easy to sample from. A key step in the proposed class of methods is the construction of a neural network that approximates the target density accurately. The methods are tested on a set of illustrative models. The results indicate the feasibility of the neural network approach.

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Paper provided by Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute in its series Econometric Institute Research Papers with number EI 2005-12.

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Date of creation: 31 Mar 2005
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Handle: RePEc:ems:eureir:2007
Contact details of provider: Postal: Postbus 1738, 3000 DR Rotterdam
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Web page: http://www.eur.nl/ese
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  1. BAUWENS, Luc & BOS, Charles S. & VAN DIJK, Herman K. & VAN OEST, Rutger D., . "Adaptive radial-based direction sampling: some flexible and robust Monte Carlo integration methods," CORE Discussion Papers RP -1731, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  5. Hoogerheide, L.F. & Kaashoek, J.F. & van Dijk, H.K., 2004. "Neural network based approximations to posterior densities: a class of flexible sampling methods with applications to reduced rank models," Econometric Institute Research Papers EI 2004-19, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
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