A generalised Bayesian instrumental variable approach under student t-distributed errors with application

Salois, M. and Balcombe, K. G. (2015) A generalised Bayesian instrumental variable approach under student t-distributed errors with application. The Manchester School, 83 (5). pp. 499-522. ISSN 1467-9957 doi: 10.1111/manc.12048

Abstract/Summary

Bayesian analysis is given of an instrumental variable model that allows for heteroscedasticity in both the structural equation and the instrument equation. Specifically, the approach for dealing with heteroscedastic errors in Geweke (1993) is extended to the Bayesian instrumental variable estimator outlined in Rossi et al. (2005). Heteroscedasticity is treated by modelling the variance for each error using a hierarchical prior that is Gamma distributed. The computation is carried out by using a Markov chain Monte Carlo sampling algorithm with an augmented draw for the heteroscedastic case. An example using real data illustrates the approach and shows that ignoring heteroscedasticity in the instrument equation when it exists may lead to biased estimates.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/34976
Item Type	Article
Refereed	Yes
Divisions	Life Sciences > School of Agriculture, Policy and Development > Department of Agri-Food Economics & Marketing
Publisher	Wiley
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