On the Practice of Bayesian Inference in Basic Economic Time Series Models Using Gibbs Sampling

Tinbergen Institute Discussion Papers No. 2006-076/4

48 Pages Posted: 10 Sep 2006

See all articles by Michiel De Pooter

Michiel De Pooter

Board of Governors of the Federal Reserve System

Rene Segers

Erasmus University Rotterdam (EUR)

H. K. van Dijk

Tinbergen Institute; Econometric Institute

Date Written: August 28, 2006

Abstract

Several lessons learned from a Bayesian analysis of basic economic time series models by means of the Gibbs sampling algorithm are presented. Models include the Cochrane-Orcutt model for serial correlation, the Koyck distributed lag model, the Unit Root model, the Instrumental Variables model and as Hierarchical Linear Mixed Models, the State-Space model and the Panel Data model. We discuss issues involved when drawing Bayesian inference on regression parameters and variance components, in particular when some parameter have substantial posterior probability near the boundary of the parameter region, and show that one should carefully scan the shape of the posterior density function. Analytical, graphical and empirical results are used along the way.

Keywords: Gibbs sampler, MCMC, serial correlation, non-stationarity, reduced rank models, state-space models, random effects panel data models

JEL Classification: C11, C15, C22, C23, C30

Suggested Citation

De Pooter, Michiel and Segers, Rene and van Dijk, Herman K., On the Practice of Bayesian Inference in Basic Economic Time Series Models Using Gibbs Sampling (August 28, 2006). Tinbergen Institute Discussion Papers No. 2006-076/4, Available at SSRN: https://ssrn.com/abstract=929060 or http://dx.doi.org/10.2139/ssrn.929060

Michiel De Pooter (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Rene Segers

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Herman K. Van Dijk

Tinbergen Institute ( email )

Gustav Mahlerplein 117
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Amsterdam/Rotterdam, 1082 MS
Netherlands
+31104088955 (Phone)
+31104089031 (Fax)

HOME PAGE: http://people.few.eur.nl/hkvandijk/

Econometric Institute ( email )

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