Scandinavian Working Papers in Economics

Working Papers,
Örebro University, School of Business

No 2015:9: Bayesian Inference in Regression Models with Ordinal Explanatory Variables

Sune Karlsson () and Asrat Temesgen
Additional contact information
Sune Karlsson: Örebro University School of Business, Postal: Örebro University, School of Business, SE - 701 82 ÖREBRO, Sweden
Asrat Temesgen: Örebro University School of Business, Postal: Örebro University, School of Business, SE - 701 82 ÖREBRO, Sweden

Abstract: This paper considers Bayesian inference procedures for regression models with ordinally observed explanatory variables. Taking advantage of a latent variable interpretation of the ordinally observed variable we develop an efficient Bayesian inference procedure that estimates the regression model of interest jointly with an auxiliary ordered probit model for the unobserved latent variable. The properties of the inference procedure and associated MCMC algorithm are assessed using simulated data. We illustrate our approach in an investigation of gender based wage discrimination in the Swedish labor market and find evidence of wage discrimination.

Keywords: Markov Chain Monte Carlo; latent variables; ordered probit; wage discrimination

JEL-codes: C11; C25; C35; J31

18 pages, September 18, 2015

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