Pitfalls of Estimating the Marginal Likelihood Using the Modified Harmonic Mean

Chi Chun (Joshua) Chan, Angelia Grant

    Research output: Contribution to journalArticle

    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 bias and tends to select the wrong model, whereas the version based on the observed-data likelihood works well.
    Original languageEnglish
    Pages (from-to)29-33
    JournalEconomics Letters
    Volume131
    DOIs
    Publication statusPublished - 2015

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