Fitting a Distribution to Survey Data for the Half-Life of Deviations from PPP

Abstract

This note presents a nonparametric Bayesian approach to fitting a distribution to the survey data provided in Kilian and Zha (2002) regarding the prior for the half-life of deviations from purchasing power parity (PPP). A point mass at infinity is included. The unknown density is represented as an average of shape-restricted Bernstein polynomials, each of which has been skewed according to a preliminary parametric fit. A sparsity prior is adopted for regularization.

Keywords: nonparametric Bayesian estimation, Bernstein polynomials, simplex regression, importance sampling, PPP half-life deviations

JEL Classification: C11, C14, F31