Abstract

http://ssrn.com/abstract=917432
 
 

References (24)



 
 

Citations (8)



 


 



A Semi-Parametric Bayesian Approach to the Instrumental Variable Problem


Timothy G. Conley


University of Chicago - Booth School of Business

Christian Hansen


University of Chicago Graduate School of Business

Robert E. McCulloch


University of Chicago - Booth School of Business

Peter E. Rossi


University of California, Los Angeles (UCLA) - Anderson School of Management

June 2007


Abstract:     
We develop a Bayesian semi-parametric approach to the instrumental variable problem. We assume linear structural and reduced form equations, but model the error distributions non-parametrically. A Dirichlet process prior is used for the joint distribution of structural and instrumental variable equations errors. Our implementation of the Dirichlet process prior uses a normal distribution as a base model. It can therefore be interpreted as modeling the unknown joint distribution with a mixture of normal distributions with a variable number of mixture components. We demonstrate that this procedure is both feasible and sensible using actual and simulated data. Sampling experiments compare inferences from the non-parametric Bayesian procedure with those based on procedures from the recent literature on weak instrument asymptotics. When errors are non-normal, our procedure is more efficient than standard Bayesian or classical methods.

Number of Pages in PDF File: 68

Keywords: instrumental variables, non-parametric Bayesian inference, Dirichlet process priors

JEL Classification: C11, C14, C3

working papers series





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Date posted: July 19, 2006  

Suggested Citation

Conley, Timothy G. and Hansen, Christian and McCulloch, Robert E. and Rossi , Peter E., A Semi-Parametric Bayesian Approach to the Instrumental Variable Problem (June 2007). Available at SSRN: http://ssrn.com/abstract=917432 or http://dx.doi.org/10.2139/ssrn.917432

Contact Information

Timothy G. Conley
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7281 (Phone)
Christian Hansen
University of Chicago Graduate School of Business ( email )
Chicago, IL 60637
United States
773-834-1702 (Phone)
Robert E. McCulloch (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
Peter E. Rossi
University of California, Los Angeles (UCLA) - Anderson School of Management ( email )
110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
773-294-8616 (Phone)
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References:  24
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