Bayesian Estimation of the Degrees of Freedom Parameter of the Student-$t$ Distribution---A Beneficial Re-parameterization

Abstract: In this paper, conditional data augmentation (DA) is investigated for the degrees of freedom parameter $\nu$ of a Student-$t$ distribution. Based on a restricted version of the expected augmented Fisher information, it is conjectured that the ancillarity DA is progressively more efficient for MCMC estimation than the sufficiency DA as $\nu$ increases; with the break even point lying at as low as $\nu\approx4$. The claim is examined further and generalized through a large simulation study and a application to U.S. macroeconomic time series. Finally, the ancillarity-sufficiency interweaving strategy is empirically shown to combine the benefits of both DAs. The proposed algorithm may set a new standard for estimating $\nu$ as part of any model.