Asymptotic properties of Bayesian inference in linear regression with a structural break

DOI10.1016/J.JECONOM.2022.03.006MaRDI QIDQ6163276zbMATH OpenOpenAlexFDO

Authors Kenichi Shimizu

Publication date 9 June 2023

Published in Journal of Econometrics (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://arxiv.org/abs/2201.07319

zbMATH Keywords

Bernstein-von Mises theoremmodel averagingsensitivity checkstructural break

Mathematics Subject Classification ID

Statistics (62-XX) Game theory, economics, finance, and other social and behavioral sciences (91-XX)

Abstract: This paper studies large sample properties of a Bayesian approach to inference about slope parameters $gamma$ in linear regression models with a structural break. In contrast to the conventional approach to inference about $gamma$ that does not take into account the uncertainty of the unknown break location $au$, the Bayesian approach that we consider incorporates such uncertainty. Our main theoretical contribution is a Bernstein-von Mises type theorem (Bayesian asymptotic normality) for $gamma$ under a wide class of priors, which essentially indicates an asymptotic equivalence between the conventional frequentist and Bayesian inference. Consequently, a frequentist researcher could look at credible intervals of $gamma$ to check robustness with respect to the uncertainty of $au$. Simulation studies show that the conventional confidence intervals of $gamma$ tend to undercover in finite samples whereas the credible intervals offer more reasonable coverages in general. As the sample size increases, the two methods coincide, as predicted from our theoretical conclusion. Using data from Paye and Timmermann (2006) on stock return prediction, we illustrate that the traditional confidence intervals on $gamma$ might underrepresent the true sampling uncertainty.

Cites work

• Asymptotic behaviour of Bayes estimates and posterior distributions in multiparameter nonregular cases
• Bayesian averaging, prediction and nonnested model selection
• Continuous record Laplace-based inference about the break date in structural change models
• Estimating and Testing Linear Models with Multiple Structural Changes
• Estimating and Testing Structural Changes in Multivariate Regressions
• Estimation and comparison of multiple change-point models
• Likelihood-ratio-based confidence sets for the timing of structural breaks
• Sample Splitting and Threshold Estimation

Cited in

(1)

• Random change point model with an application to the China household finance survey

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