Estimating posterior sensitivities with application to structural analysis of Bayesian Vector Autoregressions

Liana Jacobi, Dan Zhu, Mark Joshi

Research output: Contribution to journalArticleResearchpeer-review

Abstract

The inherent feature of Bayesian empirical analysis is the dependence of posterior inference on prior parameters, which researchers typically specify. However, quantifying the magnitude of this dependence remains difficult. This article extends Infinitesimal Perturbation Analysis, widely used in classical simulation, to compute asymptotically unbiased and consistent sensitivities of posterior statistics with respect to prior parameters from Markov chain Monte Carlo inference via Gibbs sampling. The method demonstrates the possibility of efficiently computing the complete set of prior sensitivities for a wide range of posterior statistics, alongside the estimation algorithm using Automatic Differentiation. The method’s application is exemplified in Bayesian Vector Autoregression analysis of fiscal policy in U.S. macroeconomic time series data. The analysis assesses the sensitivities of posterior estimates, including the Impulse response functions and Forecast error variance decompositions, to prior parameters under common Minnesota shrinkage priors. The findings illuminate the significant and intricate influence of prior specification on the posterior distribution. This effect is particularly notable in crucial posterior statistics, such as the substantial absolute eigenvalue of the companion matrix, ultimately shaping the structural analysis.

Original languageEnglish
Number of pages16
JournalJournal of Business and Economic Statistics
DOIs
Publication statusAccepted/In press - 2024

Keywords

  • Bayesian vector autoregression
  • Sensitivity analysis
  • Shrinkage priors
  • Structural analysis
  • Time series analysis

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