Ley, Eduardo and Steel, Mark F. J. (2011): Mixtures of g-priors for Bayesian model averaging with economic applications.
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We examine the issue of variable selection in linear regression modeling, 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. 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:||MPRA Paper|
|Original Title:||Mixtures of g-priors for Bayesian model averaging with economic applications|
|Keywords:||Consistency; Model uncertainty; Posterior odds; Prediction; Robustness|
|Subjects:||O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C11 - Bayesian Analysis: General
|Depositing User:||Eduardo Ley|
|Date Deposited:||03. Jul 2011 16:25|
|Last Modified:||13. Feb 2013 09:56|
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Mixtures of g-priors for Bayesian model averaging with economic applications. (deposited 23. Nov 2010 20:02)
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