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Bayesian reduced rank regression in econometrics

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  • John Geweke

Abstract

The reduced rank regression model arises repeatedly in theoretical and applied econometrics. To date the only general treatments of this model have been frequentist. This paper develops general methods for Bayesian inference with noninformative reference priors in this model, based on a Markov chain sampling algorithm, and procedures for obtaining predictive odds ratios for regression models with different ranks. These methods are used to obtain evidence on the number of factors in a capital asset pricing model.

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  • John Geweke, 1995. "Bayesian reduced rank regression in econometrics," Working Papers 540, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmwp:540
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    References listed on IDEAS

    as
    1. John Geweke, 1994. "Bayesian comparison of econometric models," Working Papers 532, Federal Reserve Bank of Minneapolis.
    2. Gibbons, Michael R. & Ferson, Wayne, 1985. "Testing asset pricing models with changing expectations and an unobservable market portfolio," Journal of Financial Economics, Elsevier, vol. 14(2), pages 217-236, June.
    3. John Geweke, 1991. "Evaluating the accuracy of sampling-based approaches to the calculation of posterior moments," Staff Report 148, Federal Reserve Bank of Minneapolis.
    4. Izenman, Alan Julian, 1975. "Reduced-rank regression for the multivariate linear model," Journal of Multivariate Analysis, Elsevier, vol. 5(2), pages 248-264, June.
    5. Dreze, Jacques H, 1976. "Bayesian Limited Information Analysis of the Simultaneous Equations Model," Econometrica, Econometric Society, vol. 44(5), pages 1045-1075, September.
    6. Geweke, John, 1989. "Bayesian Inference in Econometric Models Using Monte Carlo Integration," Econometrica, Econometric Society, vol. 57(6), pages 1317-1339, November.
    7. Raja P. Velu, 1991. "Reduced Rank Models with Two Sets of Regressors," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 40(1), pages 159-170, March.
    8. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    9. Ferson, Wayne E & Harvey, Campbell R, 1991. "The Variation of Economic Risk Premiums," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 385-415, April.
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    Econometrics;

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