SMU SOE Practice Job Talk (Dec 8, 2017): The GATT/WTO Welfare Effects: 1950-2015

A new Bayesian test statistic is proposed to test a point null hypothesis based on a quadratic loss. The proposed test statistic may be regarded as the Bayesian version of the Lagrange multiplier test. Its asymptotic distribution is obtained based on a set of regular conditions and follows a chi-squared distribution when the null hypothesis is correct. The new statistic has several important advantages that make it appealing in practical applications. First, it is well-defined under improper prior distributions. Second, it avoids Jeffrey–Lindley’s paradox. Third, it always takes a non negative value and is relatively easy to compute, even for models with latent variables. Fourth, its numerical standard error is relatively easy to obtain. Finally, it is asymptotically pivotal and its threshold values can be obtained from the chi- squared distribution. The method is illustrated using some real examples in economics and finance.

A new Wald-type statistic is proposed for hypothesis testing based on Bayesian posterior distributions. The new statistic can be explained as a posterior version of Wald test and have several nice properties. First, it is well-defined under improper prior distributions. Second, it avoids Jeffreys-Lindley’s paradox. Third, under the null hypothesis it follows a Chi-square distribution asymptotically, offering a pivotal test asymptotically. Fourth, it only requires inverting the posterior covariance for the parameters of interest. Fifth and perhaps most importantly, when a random sample from the posterior distribution (such as an MCMC output) is available, the proposed statistic can be obtained as a by-product of posterior simulation. In addition, the numerical standard error of the estimated proposed statistic can be computed based on the random sample. The finite sample performance of the statistic is examined in Monte Carlo studies. The method is applied to two latent variable models used in microeconometrics and financial econometrics.

This paper proposes a quasi-Bayesian approach for structural parameters in finite-horizon life-cycle models. This approach circumvents the numerical evaluation of the gradient of the objective function and alleviates the local optimum problem. The asymptotic normality of the estimators with and without approximation errors is derived. The proposed estimators reach the efficiency bound in the general methods of moment (GMM) framework. Both the estimators and the corresponding asymptotic covariance are readily computable. The estimation procedure is easy to parallel so that the graphic processing unit (GPU) can be used to enhance the computational speed. The estimation procedure is illustrated using a variant of the model in Gourinchas and Parker (2002)