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Parameter orthogonalization and Bayesian inference with many instruments

Jinyong Hahn and Karsten Hansen

Economics Letters, 2011, vol. 112, issue 2, 207-209

Abstract: It is examined how Bayesian inference might proceed in models with many instruments. A new prior specification based on Lancaster's (1997) parameter orthogonalization is developed. This orthogonalization is shown to guarantee that the statistical problems associated with the first stage coefficients are not carried over in estimating the parameter of interest.

Keywords: Orthogonalization; LIML; Many; instruments (search for similar items in EconPapers)
Date: 2011
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Handle: RePEc:eee:ecolet:v:112:y:2011:i:2:p:207-209