Scandinavian Working Papers in Economics
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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 724:
Adaptive hybrid Metropolis-Hastings samplers for DSGE models

Ingvar Strid (), Paolo Giordani () and Robert Kohn ()

Abstract: Bayesian inference for DSGE models is typically carried out by single block random walk Metropolis, involving very high computing costs. This paper combines two features, adaptive independent Metropolis-Hastings and parallelisation, to achieve large computational gains in DSGE model estimation. The history of the draws is used to continuously improve a t-copula proposal distribution, and an adaptive random walk step is inserted at predetermined intervals to escape difficult points. In linear estimation applications to a medium scale (23 parameters) and a large scale (51 parameters) DSGE model, the computing time per independent draw is reduced by 85% and 65-75% respectively. In a stylised nonlinear estimation example (13 parameters) the reduction is 80%. The sampler is also better suited to parallelisation than random walk Metropolis or blocking strategies, so that the effective computational gains, i.e. the reduction in wall-clock time per independent equivalent draw, can potentially be much larger.

Keywords: Markov Chain Monte Carlo (MCMC); Adaptive Metropolis-Hastings; Parallel algorithm; DSGE model; Copula; (follow links to similar papers)

JEL-Codes: C11; C63; (follow links to similar papers)

33 pages, February 14, 2010

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