Simulation Based Bayesian Econometric Inference: Principles and Some Recent Computational Advances

CORE Discussion Paper No. 2007/15

61 Pages Posted: 25 Jun 2007

See all articles by Lennart F. Hoogerheide

Lennart F. Hoogerheide

VU University Amsterdam

H. K. van Dijk

Tinbergen Institute; Econometric Institute

R.D. van Oest

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute

Date Written: March 2007

Abstract

In this paper we discuss several aspects of simulation based Bayesian econometric inference. We start at an elementary level on basic concepts of Bayesian analysis; evaluating integrals by simulation methods is a crucial ingredient in Bayesian inference. Next, the most popular and well-known simulation techniques are discussed, the Metropolis-Hastings algorithm and Gibbs sampling (being the most popular Markov chain Monte Carlo methods) and importance sampling. After that, we discuss two recently developed sampling methods: adaptive radial based direction sampling [ARDS], which makes use of a transformation to radial coordinates, and neural network sampling, which makes use of a neural network approximation to the posterior distribution of interest. Both methods are especially useful in cases where the posterior distribution is not well-behaved, in the sense of having highly non-elliptical shapes. The simulation techniques are illustrated in several example models, such as a model for the real US GNP and models for binary data of a US recession indicator.

JEL Classification: C11, C12, C15, C45, C52

Suggested Citation

Hoogerheide, Lennart F. and van Dijk, Herman K. and van Oest, Rutger, Simulation Based Bayesian Econometric Inference: Principles and Some Recent Computational Advances (March 2007). CORE Discussion Paper No. 2007/15. Available at SSRN: https://ssrn.com/abstract=994801 or http://dx.doi.org/10.2139/ssrn.994801

Lennart F. Hoogerheide (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Herman K. Van Dijk

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Burg. Oudlaan 50
Amsterdam/Rotterdam, 1082 MS
Netherlands
+31104088955 (Phone)
+31104089031 (Fax)

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

Econometric Institute ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 4088955 (Phone)
+31 10 4527746 (Fax)

Rutger Van Oest

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
+31 10 408 8946 (Phone)
+31 10 408 9162 (Fax)

Tinbergen Institute

P.O. Box 1738
H16-32
3000 DR Rotterdam
Netherlands

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