Econometrica: Nov, 1989, Volume 57, Issue 6

Bayesian Inference in Econometric Models Using Monte Carlo Integration

https://doi.org/0012-9682(198911)57:6<1317:BIIEMU>2.0.CO;2-5
p. 1317-1339

John Geweke

Methods for the systematic application of Monte Carlo integration with importance sampling to Bayesian inference in econometric models are developed. Conditions under which the numerical approximation of a posterior moment converges almost surely to the true value as the number of Monte Carlo replications increases, and the numerical accuracy of this approximation may be assessed reliably, are set forth. Methods for the analytical verification of these conditions are discussed. Importance sampling densities are derived from multivariate normal of Student t approximations to local behavior of the posterior density at its mode. These densities are modified by automatic rescaling along each axis. The concept of relative numerical efficiency is introduced to evaluate the adequacy of a chosen importance sampling density. The practical procedures based on these innovations are illustrated in two different models.