A direct Monte Carlo approach for Bayesian analysis of the seemingly unrelated regression model

Chicago Booth School of Business, University of Chicago, Chicago, IL, 60637, United States; Graduate School of Business Administration, Keio University, Yokohama, Kanagawa, 223-8523, Japan
Journal of Econometrics 11/2010; DOI: 10.1016/j.jeconom.2010.04.005

ABSTRACT Computationally efficient methods for Bayesian analysis of seemingly unrelated regression (SUR) models are described and applied that involve the use of a direct Monte Carlo (DMC) approach to calculate Bayesian estimation and prediction results using diffuse or informative priors. This DMC approach is employed to compute Bayesian marginal posterior densities, moments, intervals and other quantities, using data simulated from known models and also using data from an empirical example involving firms’ sales. The results obtained by the DMC approach are compared to those yielded by the use of a Markov Chain Monte Carlo (MCMC) approach. It is concluded from these comparisons that the DMC approach is worthwhile and applicable to many SUR and other problems.

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