Linear regression with measurement error in the covariates is a heavily studied topic, however, the statistics/econometrics literature is almost silent to estimating a multi-equation model with measurement error. This paper considers a seemingly unrelated regression model with measurement error in the covariates and introduces two novel estimation methods: a pure Bayesian algorithm (based on Markov chain Monte Carlo techniques) and its mean field variational Bayes (MFVB) approximation. The MFVB method has the added advantage of being computationally fast and can handle big data. An issue pertinent to measurement error models is parameter identification, and this is resolved by employing a prior distribution on the measurement error variance. The methods are shown to perform well in multiple simulation studies, where we analyze the impact on posterior estimates for different values of reliability ratio or variance of the true unobserved quantity used in the data generating process. The paper further implements the proposed algorithms in an application drawn from the health literature and shows that modeling measurement error in the data can improve model fitting.
Funding source: Science and Engineering Research Board, Department of Science and Technology, Government of India
Award Identifier / Grant number: MTR/2019/000033/MS
We dedicate this article to the memory of Viren K. Srivastava. We thank the editor Antoine Chambaz, associate editor Laura Sangalli and an anonymous referee for their valuable comments. We are also grateful to David Brownstone, Ivan Jeliazkov, Dale Poirier and the participants of the research seminar (2015) at the University of California, Irvine for a variety of helpful comments and suggestions on an earlier version. The last author (Shalabh) acknowledges funding under the MATRICS scheme from the Science and Engineering Research Board, Department of Science and Technology, Government of India.
Author contribution: All the authors have accepted responsibility for the entire content of this submitted manuscript and approved submission.
Research funding: None declared.
Conflict of interest statement: The authors declare no conflicts of interest regarding this article.
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The online version of this article offers supplementary material (https://doi.org/10.1515/ijb-2019-0120).
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