Pitfalls of Estimating the Marginal Likelihood Using the Modified Harmonic Mean

Joshua Chan and Angelia Grant

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: The modified harmonic mean is widely used for estimating the marginal likelihood. We investigate the empirical performance of two versions of this estimator: one based on the observed-data likelihood and the other on the complete-data likelihood. Through an empirical example using US and UK inflation, we show that the version based on the complete-data likelihood has a substantial finite sample bias and tends to select the wrong model, whereas the version based on the observed-data likelihood works well.

Keywords: Bayesian model comparison; state space; unobserved components; inflation (search for similar items in EconPapers)
JEL-codes: C11 C15 C32 C52 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2015-03
New Economics Papers: this item is included in nep-ecm and nep-ore
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Citations: View citations in EconPapers (20)

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Related works:
Journal Article: Pitfalls of estimating the marginal likelihood using the modified harmonic mean (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2015-08

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