Publication Type

Working Paper

Version

publishedVersion

Publication Date

6-2014

Abstract

A new Bayesian test statistic is proposed to test a point null hypothesis based on of regular conditions and follows a chi-squared distribution when the null hypothesis is correct. The new statistic has several important advantages that make it appeal in practical applications. First, it is well-defined under improper prior distributions. Second, it avoids Jeffrey-Lindley’s paradox. Third, it is relatively easy to compute, even for models with latent variables. Finally, it is pivotal and its threshold value can be easily obtained from the asymptotic chi-squared distribution. The method is illustrated using some real examples in economics and finance.

Keywords

Bayes factor; Decision theory; EM algorithm; Lagrange multiplier; Markov chain Monte Carlo; Latent variable models.

Discipline

Econometrics

Research Areas

Econometrics

First Page

1

Last Page

28

Publisher

SMU Economics and Statistics Working Paper Series, No. 03-2014

City or Country

Singapore

Copyright Owner and License

Authors

Comments

Published in Journal of Econometrics https://doi.org/10.1016/j.jeconom.2015.06.021

Included in

Econometrics Commons

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