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Mixtures of g-priors for Bayesian model averaging with economic applications
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Ley, Eduardo and Steel, Mark F. J. (2012) Mixtures of g-priors for Bayesian model averaging with economic applications. Journal of Econometrics, Volume 171 (Number 2). pp. 251-266. doi:10.1016/j.jeconom.2012.06.009 ISSN 0304-4076.
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WRAP_Steel_Mixtures_1-s2.0-S030440761200156X-main.pdf - Published Version Available under License Creative Commons Attribution. Download (983Kb) | Preview |
Official URL: http://dx.doi.org/10.1016/j.jeconom.2012.06.009
Abstract
We examine the issue of variable selection in linear regression modelling, where we have a potentially large amount of possible covariates and economic theory offers insufficient guidance on how to select the appropriate subset. In this context, Bayesian Model Averaging presents a formal Bayesian solution to dealing with model uncertainty. Our main interest here is the effect of the prior on the results, such as posterior inclusion probabilities of regressors and predictive performance. We combine a Binomial-Beta prior on model size with a g-prior on the coefficients of each model. In addition, we assign a hyperprior to g, as the choice of g has been found to have a large impact on the results. For the prior on g, we examine the Zellner-Siow prior and a class of Beta shrinkage priors, which covers most choices in the recent literature. We propose a benchmark Beta prior, inspired by earlier findings with fixed g, and show it leads to consistent model selection. The effect of this prior structure on penalties for complexity and lack of fit is described in some detail. Inference is conducted through a Markov chain Monte Carlo sampler over model space and g. We examine the performance of the various priors in the context of simulated and real data. For the latter, we consider two important applications in economics, namely cross-country growth regression and returns to schooling. Recommendations to applied users are provided.
| Item Type: | Journal Article | ||||
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| Subjects: | H Social Sciences > HB Economic Theory Q Science > QA Mathematics |
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| Divisions: | Faculty of Science, Engineering and Medicine > Science > Statistics | ||||
| Library of Congress Subject Headings (LCSH): | Econometrics, Econometric models, Mathematical models, Bayesian statistical decision theory, Statistical decision, Robust statistics , Distribution (Probability theory), Mathematical statistics, Economics | ||||
| Journal or Publication Title: | Journal of Econometrics | ||||
| Publisher: | Elsevier BV * North-Holland | ||||
| ISSN: | 0304-4076 | ||||
| Official Date: | December 2012 | ||||
| Dates: |
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| Volume: | Volume 171 | ||||
| Number: | Number 2 | ||||
| Page Range: | pp. 251-266 | ||||
| DOI: | 10.1016/j.jeconom.2012.06.009 | ||||
| Status: | Peer Reviewed | ||||
| Publication Status: | Published | ||||
| Access rights to Published version: | Restricted or Subscription Access | ||||
| Date of first compliant deposit: | 23 December 2015 | ||||
| Date of first compliant Open Access: | 23 December 2015 |
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