empiricalblm

Bayesian linear regression model with samples from prior or posterior distributions

Description

The Bayesian linear regression model object empiricalblm contains samples from the prior distributions of β and σ², which MATLAB^® uses to characterize the prior or posterior distributions.

The data likelihood is $\prod_{t = 1}^{T} ϕ (y_{t}; x_{t} β, σ^{2}),$ where ϕ(y_t;x_tβ,σ²) is the Gaussian probability density evaluated at y_t with mean x_tβ and variance σ². Because the form of the prior distribution functions are unknown, the resulting posterior distributions are not analytically tractable. Hence, to estimate or simulate from posterior distributions, MATLAB implements sampling importance resampling.

You can create a Bayesian linear regression model with an empirical prior directly using bayeslm or empiricalblm. However, for empirical priors, estimating the posterior distribution requires that the prior closely resemble the posterior. Hence, empirical models are better suited for updating posterior distributions estimated using Monte Carlo sampling (for example, semiconjugate and custom prior models) given new data.

Creation

Empirical Model Objects Returned by `estimate`

For semiconjugate, empirical, or custom prior models, estimate estimates the posterior distribution using Monte Carlo sampling. That is, estimate characterizes the posterior distribution by a large number of draws from that distribution. estimate stores the draws in the BetaDraws and Sigma2Draws properties of the returned Bayesian linear regression model object. Hence, when you estimate semiconjugateblm, empiricalblm, customblm, lassoblm, mixconjugateblm, and mixconjugateblm model objects, estimate returns an empiricalblm model object.

Direct Empirical Model Creation

If you want to update an estimated posterior distribution using new data, and you have draws from the posterior distribution of β and σ², then you can create an empirical model using empiricalblm.

Syntax

Description

example

PriorMdl = empiricalblm(NumPredictors,'BetaDraws',BetaDraws,'Sigma2Draws',Sigma2Draws) creates a Bayesian linear regression model object (PriorMdl) composed of NumPredictors predictors and an intercept, and sets the NumPredictors property. The random samples from the prior distributions of β and σ², BetaDraws and Sigma2Draws, respectively, characterize the prior distributions. PriorMdl is a template that defines the prior distributions and the dimensionality of β.

example

PriorMdl = empiricalblm(NumPredictors,'BetaDraws',BetaDraws,'Sigma2Draws',Sigma2Draws,Name,Value) sets properties (except NumPredictors) using name-value pair arguments. Enclose each property name in quotes. For example, empiricalblm(2,'BetaDraws',BetaDraws,'Sigma2Draws',Sigma2Draws,'Intercept', false) specifies the random samples from the prior distributions of β and σ² and specifies a regression model with 2 regression coefficients, but no intercept.

Properties

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You can set writable property values when you create the model object by using name-value pair argument syntax, or after you create the model object by using dot notation. For example, to specify that there is no model intercept in PriorMdl, a Bayesian linear regression model containing three model coefficients, enter

PriorMdl.Intercept = false;

`NumPredictors` — Number of predictor variables
nonnegative integer

Number of predictor variables in the Bayesian multiple linear regression model, specified as a nonnegative integer.

NumPredictors must be the same as the number of columns in your predictor data, which you specify during model estimation or simulation.

When specifying NumPredictors, exclude any intercept term from the value.

After creating a model, if you change the value of NumPredictors using dot notation, then VarNames reverts to its default value.

Data Types: double

`Intercept` — Flag for including regression model intercept
`true` (default) | `false`

Flag for including a regression model intercept, specified as a value in this table.

Value	Description
`false`	Exclude an intercept from the regression model. Therefore, β is a `p`-dimensional vector, where `p` is the value of `NumPredictors`.
`true`	Include an intercept in the regression model. Therefore, β is a (`p` + 1)-dimensional vector. This specification causes a T-by-1 vector of ones to be prepended to the predictor data during estimation and simulation.

If you include a column of ones in the predictor data for an intercept term, then set Intercept to false.

Example: 'Intercept',false

Data Types: logical

`VarNames` — Predictor variable names
string vector | cell vector of character vectors

Predictor variable names for displays, specified as a string vector or cell vector of character vectors. VarNames must contain NumPredictors elements. VarNames(j) is the name of the variable in column j of the predictor data set, which you specify during estimation, simulation, or forecasting.

The default is {'Beta(1)','Beta(2),...,Beta(p)}, where p is the value of NumPredictors.

Example: 'VarNames',["UnemploymentRate"; "CPI"]

Data Types: string | cell | char

`BetaDraws` — Random sample from prior distribution of β
numeric matrix

Random sample from the prior distribution of β, specified as a (Intercept + NumPredictors)-by-NumDraws numeric matrix. Rows correspond to regression coefficients; the first row corresponds to the intercept, and the subsequent rows correspond to columns in the predictor data. Columns correspond to successive draws from the prior distribution.

BetaDraws and SigmaDraws must have the same number of columns.

NumDraws should be reasonably large.

Data Types: double

`Sigma2Draws` — Random sample from prior distribution of σ²
numeric matrix

Random sample from the prior distribution of σ², specified as a 1-by-NumDraws numeric matrix. Columns correspond to successive draws from the prior distribution.

BetaDraws and Sigma2Draws must have the same number of columns.

NumDraws should be reasonably large.

Data Types: double

Object Functions

`estimate`	Estimate posterior distribution of Bayesian linear regression model parameters
`simulate`	Simulate regression coefficients and disturbance variance of Bayesian linear regression model
`forecast`	Forecast responses of Bayesian linear regression model
`plot`	Visualize prior and posterior densities of Bayesian linear regression model parameters
`summarize`	Distribution summary statistics of standard Bayesian linear regression model

Examples

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Create Empirical Prior Model

Open Live Script

Consider the multiple linear regression model that predicts the US real gross national product (GNPR) using a linear combination of industrial production index (IPI), total employment (E), and real wages (WR).

${GNPR}_{t} = β_{0} + β_{1} {IPI}_{t} + β_{2} E_{t} + β_{3} {WR}_{t} + ε_{t} .$

For all $t$ time points, $ε_{t}$ is a series of independent Gaussian disturbances with a mean of 0 and variance $σ^{2}$ .

Assume that the prior distributions are:

$β | σ^{2} \sim N_{4} (M, V)$ . $M$ is a 4-by-1 vector of means, and $V$ is a scaled 4-by-4 positive definite covariance matrix.
$σ^{2} \sim I G (A, B)$ . $A$ and $B$ are the shape and scale, respectively, of an inverse gamma distribution.

These assumptions and the data likelihood imply a normal-inverse-gamma semiconjugate model. That is, the conditional posteriors are conjugate to the prior with respect to the data likelihood, but the marginal posterior is analytically intractable.

Create a normal-inverse-gamma semiconjugate prior model for the linear regression parameters. Specify the number of predictors p.

p = 3;
PriorMdl = bayeslm(p,'ModelType','semiconjugate')

PriorMdl = 
  semiconjugateblm with properties:

    NumPredictors: 3
        Intercept: 1
         VarNames: {4x1 cell}
               Mu: [4x1 double]
                V: [4x4 double]
                A: 3
                B: 1

 
           |  Mean     Std           CI95         Positive     Distribution    
-------------------------------------------------------------------------------
 Intercept |  0       100    [-195.996, 195.996]    0.500   N (0.00, 100.00^2) 
 Beta(1)   |  0       100    [-195.996, 195.996]    0.500   N (0.00, 100.00^2) 
 Beta(2)   |  0       100    [-195.996, 195.996]    0.500   N (0.00, 100.00^2) 
 Beta(3)   |  0       100    [-195.996, 195.996]    0.500   N (0.00, 100.00^2) 
 Sigma2    | 0.5000  0.5000    [ 0.138,  1.616]     1.000   IG(3.00,    1)

Mdl is a semiconjugateblm Bayesian linear regression model object representing the prior distribution of the regression coefficients and disturbance variance. At the command window, bayeslm displays a summary of the prior distributions.

Load the Nelson-Plosser data set. Create variables for the response and predictor series.

load Data_NelsonPlosser
VarNames = {'IPI'; 'E'; 'WR'};
X = DataTable{:,VarNames};
y = DataTable{:,'GNPR'};

Estimate the marginal posterior distributions of $β$ and $σ^{2}$ .

rng(1); % For reproducibility
PosteriorMdl = estimate(PriorMdl,X,y);

Method: Gibbs sampling with 10000 draws
Number of observations: 62
Number of predictors:   4
 
           |   Mean      Std          CI95        Positive  Distribution 
-------------------------------------------------------------------------
 Intercept | -23.9922  9.0520  [-41.734, -6.198]    0.005     Empirical  
 Beta(1)   |   4.3929  0.1458   [ 4.101,  4.678]    1.000     Empirical  
 Beta(2)   |   0.0011  0.0003   [ 0.000,  0.002]    0.999     Empirical  
 Beta(3)   |   2.4711  0.3576   [ 1.762,  3.178]    1.000     Empirical  
 Sigma2    |  46.7474  8.4550   [33.099, 66.126]    1.000     Empirical

PosteriorMdl is an empiricalblm model object storing draws from the posterior distributions of $β$ and $σ^{2}$ given the data. estimate displays a summary of the marginal posterior distributions to the command window. Rows of the summary correspond to regression coefficients and the disturbance variance, and columns to characteristics of the posterior distribution. The characteristics include:

CI95, which contains the 95% Bayesian equitailed credible intervals for the parameters. For example, the posterior probability that the regression coefficient of WR is in [1.762, 3.178] is 0.95.
Positive, which contains the posterior probability that the parameter is greater than 0. For example, the probability that the intercept is greater than 0 is 0.005.

In this case, the marginal posterior is analytically intractable. Therefore, estimate uses Gibbs sampling to draw from the posterior and estimate the posterior characteristics.

Update Marginal Posterior Distribution for New Data

Open Live Script

Consider the linear regression model in Create Empirical Prior Model.

Create a normal-inverse-gamma semiconjugate prior model for the linear regression parameters. Specify the number of predictors p and the names of the regression coefficients.

p = 3;
PriorMdl = bayeslm(p,'ModelType','semiconjugate','VarNames',["IPI" "E" "WR"]);

Load the Nelson-Plosser data set. Partition the data by reserving the last five periods in the series.

load Data_NelsonPlosser
X0 = DataTable{1:(end - 5),PriorMdl.VarNames(2:end)};
y0 = DataTable{1:(end - 5),'GNPR'};
X1 = DataTable{(end - 4):end,PriorMdl.VarNames(2:end)};
y1 = DataTable{(end - 4):end,'GNPR'};

Estimate the marginal posterior distributions of $β$ and $σ^{2}$ .

rng(1); % For reproducibility
PosteriorMdl0 = estimate(PriorMdl,X0,y0);

Method: Gibbs sampling with 10000 draws
Number of observations: 57
Number of predictors:   4
 
           |   Mean      Std           CI95         Positive  Distribution 
---------------------------------------------------------------------------
 Intercept | -34.3887  10.5218  [-55.350, -13.615]    0.001     Empirical  
 IPI       |   3.9076   0.2786   [ 3.356,  4.459]     1.000     Empirical  
 E         |   0.0011   0.0003   [ 0.000,  0.002]     0.999     Empirical  
 WR        |   3.2146   0.4967   [ 2.228,  4.196]     1.000     Empirical  
 Sigma2    |  45.3098   8.5597   [31.620, 64.972]     1.000     Empirical

PosteriorMdl0 is an empiricalblm model object storing the Gibbs-sampling draws from the posterior distribution.

Update the posterior distribution based on the last 5 periods of data by passing those observations and the posterior distribution to estimate.

PosteriorMdl1 = estimate(PosteriorMdl0,X1,y1);

Method: Importance sampling/resampling with 10000 draws
Number of observations: 5
Number of predictors:   4
 
           |   Mean      Std          CI95        Positive  Distribution 
-------------------------------------------------------------------------
 Intercept | -24.3152  9.3408  [-41.163, -5.301]    0.008     Empirical  
 IPI       |   4.3893  0.1440   [ 4.107,  4.658]    1.000     Empirical  
 E         |   0.0011  0.0004   [ 0.000,  0.002]    0.998     Empirical  
 WR        |   2.4763  0.3694   [ 1.630,  3.170]    1.000     Empirical  
 Sigma2    |  46.5211  8.2913   [33.646, 65.402]    1.000     Empirical

To update the posterior distributions based on draws, estimate uses sampling importance resampling.

Estimate Posterior Probability Using Monte Carlo Simulation

Open Live Script

Consider the linear regression model in Estimate Marginal Posterior Distribution.

Create a prior model for the regression coefficients and disturbance variance, then estimate the marginal posterior distributions.

p = 3;
PriorMdl = bayeslm(p,'ModelType','semiconjugate','VarNames',["IPI" "E" "WR"]);

load Data_NelsonPlosser
X = DataTable{:,PriorMdl.VarNames(2:end)};
y = DataTable{:,'GNPR'};

rng(1); % For reproducibility
PosteriorMdl = estimate(PriorMdl,X,y);

Method: Gibbs sampling with 10000 draws
Number of observations: 62
Number of predictors:   4
 
           |   Mean      Std          CI95        Positive  Distribution 
-------------------------------------------------------------------------
 Intercept | -23.9922  9.0520  [-41.734, -6.198]    0.005     Empirical  
 IPI       |   4.3929  0.1458   [ 4.101,  4.678]    1.000     Empirical  
 E         |   0.0011  0.0003   [ 0.000,  0.002]    0.999     Empirical  
 WR        |   2.4711  0.3576   [ 1.762,  3.178]    1.000     Empirical  
 Sigma2    |  46.7474  8.4550   [33.099, 66.126]    1.000     Empirical

Estimate posterior distribution summary statistics for $β$ by using the draws from the posterior distribution stored in posterior model.

estBeta = mean(PosteriorMdl.BetaDraws,2);
EstBetaCov = cov(PosteriorMdl.BetaDraws');

Suppose that if the coefficient of real wages is below 2.5, then a policy is enacted. Although the posterior distribution of WR is known, and so you can calculate probabilities directly, you can estimate the probability using Monte Carlo simulation instead.

Draw 1e6 samples from the marginal posterior distribution of $β$ .

NumDraws = 1e6;
rng(1);
BetaSim = simulate(PosteriorMdl,'NumDraws',NumDraws);

BetaSim is a 4-by- 1e6 matrix containing the draws. Rows correspond to the regression coefficient and columns to successive draws.

Isolate the draws corresponding to the coefficient of real wages, and then identify which draws are less than 2.5.

isWR = PosteriorMdl.VarNames == "WR";
wrSim = BetaSim(isWR,:);
isWRLT2p5 = wrSim < 2.5;

Find the marginal posterior probability that the regression coefficient of WR is below 2.5 by computing the proportion of draws that are less than 2.5.

probWRLT2p5 = mean(isWRLT2p5)

probWRLT2p5 = 0.5283

The posterior probability that the coefficient of real wages is less than 2.5 is about 0.53.

Forecast Responses Using Posterior Predictive Distribution

Open Live Script

Consider the linear regression model in Estimate Marginal Posterior Distribution.

Create a prior model for the regression coefficients and disturbance variance, then estimate the marginal posterior distributions. Hold out the last 10 periods of data from estimation so you can use them to forecast real GNP. Turn the estimation display off.

p = 3;
PriorMdl = bayeslm(p,'ModelType','semiconjugate','VarNames',["IPI" "E" "WR"]);

load Data_NelsonPlosser
fhs = 10; % Forecast horizon size
X = DataTable{1:(end - fhs),PriorMdl.VarNames(2:end)};
y = DataTable{1:(end - fhs),'GNPR'};
XF = DataTable{(end - fhs + 1):end,PriorMdl.VarNames(2:end)}; % Future predictor data
yFT = DataTable{(end - fhs + 1):end,'GNPR'};                  % True future responses

rng(1); % For reproducibility
PosteriorMdl = estimate(PriorMdl,X,y,'Display',false);

Forecast responses using the posterior predictive distribution and using the future predictor data XF. Plot the true values of the response and the forecasted values.

yF = forecast(PosteriorMdl,XF);

figure;
plot(dates,DataTable.GNPR);
hold on
plot(dates((end - fhs + 1):end),yF)
h = gca;
hp = patch([dates(end - fhs + 1) dates(end) dates(end) dates(end - fhs + 1)],...
    h.YLim([1,1,2,2]),[0.8 0.8 0.8]);
uistack(hp,'bottom');
legend('Forecast Horizon','True GNPR','Forecasted GNPR','Location','NW')
title('Real Gross National Product: 1909 - 1970');
ylabel('rGNP');
xlabel('Year');
hold off

yF is a 10-by-1 vector of future values of real GNP corresponding to the future predictor data.

Estimate the forecast root mean squared error (RMSE).

frmse = sqrt(mean((yF - yFT).^2))

frmse = 25.1938

The forecast RMSE is a relative measure of forecast accuracy. Specifically, you estimate several models using different assumptions. The model with the lowest forecast RMSE is the best-performing model of the ones being compared.

More About

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Bayesian Linear Regression Model

A Bayesian linear regression model treats the parameters β and σ² in the multiple linear regression (MLR) model y_t = x_tβ + ε_t as random variables.

For times t = 1,...,T:

y_t is the observed response.
x_t is a 1-by-(p + 1) row vector of observed values of p predictors. To accommodate a model intercept, x_1t = 1 for all t.
β is a (p + 1)-by-1 column vector of regression coefficients corresponding to the variables that compose the columns of x_t.
ε_t is the random disturbance with a mean of zero and Cov(ε) = σ²I_T×T, while ε is a T-by-1 vector containing all disturbances. These assumptions imply that the data likelihood is

$ℓ (β, σ^{2} | y, x) = \prod_{t = 1}^{T} ϕ (y_{t}; x_{t} β, σ^{2}) .$
ϕ(y_t;x_tβ,σ²) is the Gaussian probability density with mean x_tβ and variance σ² evaluated at y_t;.

Before considering the data, you impose a joint prior distribution assumption on (β,σ²). In a Bayesian analysis, you update the distribution of the parameters by using information about the parameters obtained from the likelihood of the data. The result is the joint posterior distribution of (β,σ²) or the conditional posterior distributions of the parameters.

Sampling Importance Resampling

In the Bayesian statistics context, sampling importance resampling is a Monte Carlo algorithm for drawing samples from the posterior distribution. In general, the algorithm draws a large, weighted sample of parameter values with replacement from their respective prior distributions.

This is the algorithm in the context of Bayesian linear regression.

Randomly draw a large number of samples from the joint prior distribution π(β,σ_k²). B is the (p + 1)-by-K matrix containing the values of β, and Σ is the 1-by-K vector containing the values of σ².
For each draw k = 1,...,K:
1. Estimate the residual vector $r_{k t} = y_{t} - X_{t} β_{k},$ where y_j is response j, X_j is the 1-by-p vector of predictor observations, and β_k is draw k from B.
2. Evaluate the likelihood $ℓ_{k} = \sum_{j} \log [ϕ (r_{k j}; 0, σ_{k}^{2})],$ where ϕ(r_kj;0,σ_k²) is the pdf of the normal distribution with a mean of 0 and variance of σ_k² (draw k from Σ).
3. Estimate the normalized importance weight $w_{k} = \frac{\exp (ℓ_{k})}{\sum_{k} \exp (ℓ_{k})} .$
Randomly draw, with replacement, K parameters from B and Σ with respect to the normalized importance weights.

The resulting sample is approximately from the joint posterior distribution π(β,σ_k²|y_t,X_t).

Those prior draws that the algorithm is likely to choose to be in the posterior sample are those that yield higher data likelihood values. If the prior draws yield poor likelihood values, then the chosen posterior sample will poorly approximate the actual posterior distribution. For details on diagnostics, see Algorithms.

Algorithms

After implementing sampling importance resampling to sample from the posterior distribution, estimate, simulate, and forecast compute the effective sample size (ESS), which is the number of samples required to yield reasonable posterior statistics and inferences. Its formula is

$E S S = \frac{1}{\sum_{j} w_{j}^{2}} .$
If ESS < 0.01*NumDraws, then MATLAB throws a warning. The warning implies that, given the sample from the prior distribution, the sample from the proposal distribution is too small to yield good quality posterior statistics and inferences.
If the effective sample size is too small, then:
- Increase the sample size of the draws from the prior distributions.
- Adjust the prior distribution hyperparameters, and then resample from them.
Specify BetaDraws and Sigma2Draws as samples from informative prior distributions. That is, if the proposal draws come from nearly flat distributions, then the algorithm can be inefficient.

Alternatives

The bayeslm function can create any supported prior model object for Bayesian linear regression.

Documentation

empiricalblm

Description

Creation

Empirical Model Objects Returned by `estimate`

Direct Empirical Model Creation

Syntax

Properties

`NumPredictors` — Number of predictor variables
nonnegative integer

`Intercept` — Flag for including regression model intercept
`true` (default) | `false`

`VarNames` — Predictor variable names
string vector | cell vector of character vectors

`BetaDraws` — Random sample from prior distribution of β
numeric matrix

`Sigma2Draws` — Random sample from prior distribution of σ²
numeric matrix

Object Functions

Examples

Create Empirical Prior Model

Update Marginal Posterior Distribution for New Data

Estimate Posterior Probability Using Monte Carlo Simulation

Forecast Responses Using Posterior Predictive Distribution

More About

Bayesian Linear Regression Model

Sampling Importance Resampling

Algorithms

Alternatives

See Also

Objects

Functions

Topics

Econometrics Toolbox Documentation

Support

Documentation

empiricalblm

Description

Creation

Empirical Model Objects Returned by estimate

Direct Empirical Model Creation

Syntax

Properties

NumPredictors — Number of predictor variables nonnegative integer

Intercept — Flag for including regression model intercept true (default) | false

VarNames — Predictor variable names string vector | cell vector of character vectors

BetaDraws — Random sample from prior distribution of β numeric matrix

Sigma2Draws — Random sample from prior distribution of σ2 numeric matrix

Object Functions

Examples

Create Empirical Prior Model

Update Marginal Posterior Distribution for New Data

Estimate Posterior Probability Using Monte Carlo Simulation

Forecast Responses Using Posterior Predictive Distribution

More About

Bayesian Linear Regression Model

Sampling Importance Resampling

Algorithms

Alternatives

See Also

Objects

Functions

Topics

Econometrics Toolbox Documentation

Support

Empirical Model Objects Returned by `estimate`

`NumPredictors` — Number of predictor variables
nonnegative integer

`Intercept` — Flag for including regression model intercept
`true` (default) | `false`

`VarNames` — Predictor variable names
string vector | cell vector of character vectors

`BetaDraws` — Random sample from prior distribution of β
numeric matrix

`Sigma2Draws` — Random sample from prior distribution of σ²
numeric matrix