Sequential Monte Carlo Methods

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Augustus Harrington
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1 University of Pennsylvania Bradley Visitor Lectures October 23, 2017

2 Introduction Unfortunately, standard MCMC can be inaccurate, especially in medium and large-scale DSGE models: disentangling importance of internal versus external propagation mechanism; determining the relative importance of shocks. Now, we use sequential Monte Carlo (SMC) (more precisely, sequential importance sampling) instead: Better suited to handle irregular and multimodal posteriors associated with large DSGE models. Algorithms can be easily parallelized. SMC = Importance Sampling on Steriods. We build on Theoretical work: Chopin (2004); Del Moral, Doucet, Jasra (2006) Applied work: Creal (2007); Durham and Geweke (2011, 2012)

3 Importance Sampling Approximate π( ) by using a different, tractable density g(θ) that is easy to sample from. For more general problems, posterior density may be non-normalized. So we write π(θ) = p(y θ)p(θ) p(y ) = f (θ) f (θ)dθ. Importance sampling is based on the identity The ratio E π [h(θ)] = h(θ)π(θ)dθ = w(θ) = f (θ) g(θ) f (θ) h(θ) Θ Θ g(θ) g(θ)dθ f (θ) g(θ) g(θ)dθ. is called the (unnormalized) importance weight.

4 Importance Sampling 1 For i = 1 to N, draw θ i iid g(θ) and compute the unnormalized importance weights w i = w(θ i ) = f (θi ) g(θ i ). 2 Compute the normalized importance weights W i = 1 N w i N i=1 w i. An approximation of E π [h(θ)] is given by h N = 1 N N W i h(θ i ). i=1

5 Illustration If θ i s are draws from g( ) then E π [h] 1 N N i=1 h(θi )w(θ i ) 1 N N i=1 w(θi ), w(θ) = f (θ) g(θ) f 0.30 g g weights f/g 1 f/g

6 Accuracy Since we are generating iid draws from g(θ), it s fairly straightforward to derive a CLT: It can be shown that N( hn E π [h]) = N ( 0, Ω(h) ), where Ω(h) = V g [(π/g)(h E π [h])]. Using a crude approximation (see, e.g., Liu (2008)), we can factorize Ω(h) as follows: Ω(h) V π [h] ( V g [π/g] + 1 ). The approximation highlights that the larger the variance of the importance weights, the less accurate the Monte Carlo approximation relative to the accuracy that could be achieved with an iid sample from the posterior. Users often monitor ESS = N V π[h] Ω(h) N 1 + V g [π/g].

7 From Importance Sampling to Sequential Importance Sampling In general, it s hard to construct a good proposal density g(θ), especially if the posterior has several peaks and valleys. Idea - Part 1: it might be easier to find a proposal density for π n (θ) = [p(y θ)]φn p(θ) = f n(θ). [p(y θ)] φ np(θ)dθ Z n at least if φ n is close to zero. Idea - Part 2: We can try to turn a proposal density for π n into a proposal density for π n+1 and iterate, letting φ n φ N = 1.

8 Illustration A stylized state-space model: [ ] [ θ1 y t = [1 1]s t, s t = (1 θ1 2) θ 1θ 2 (1 θ1 2) s t Innovation: ɛ t iidn(0, 1). Prior: uniform on the square 0 θ 1 1 and 0 θ 2 1. ] ɛ t. Simulate T = 200 observations given θ = [0.45, 0.45], which is observationally equivalent to θ = [0.89, 0.22]

9 Illustration: Tempered Posteriors of θ n θ π n (θ) = [p(y p(θ) θ)]φn = f ( ) λ n(θ) n, φ [p(y θ)] φ np(θ)dθ n = Z n N φ

10 Illustration: Posterior Draws θ θ 1

11 SMC Algorithm: A Graphical Illustration C S M C S M C S M φ 0 φ 1 φ 2 φ 3 π n (θ) is represented by a swarm of particles {θ i n, W i n} N i=1 : h n,n = 1 N N i=1 W i nh(θ i n) a.s. E πn [h(θ n )]. C is Correction; S is Selection; and M is Mutation.

12 SMC Algorithm 1 Initialization. (φ 0 = 0). Draw the initial particles from the prior: θ1 i iid p(θ) and W i 1 = 1, i = 1,..., N. 2 Recursion. For n = 1,..., N φ, 1 Correction. Reweight the particles from stage n 1 by defining the incremental weights w i n = [p(y θ i n 1)] φn φ n 1 (1) and the normalized weights W n i w i = nwn 1 i 1 N N i=1 w, i = 1,..., N. (2) nw i n 1 i An approximation of E πn [h(θ)] is given by h n,n = 1 N 2 Selection. N i=1 W i nh(θ i n 1). (3)

13 SMC Algorithm 1 Initialization. 2 Recursion. For n = 1,..., N φ, 1 Correction. 2 Selection. (Optional Resampling) Let {ˆθ} N i=1 denote N iid draws from a multinomial distribution characterized by support points and weights {θ i n 1, W i n} N i=1 and set W i n = 1. An approximation of E πn [h(θ)] is given by ĥ n,n = 1 N N Wnh(ˆθ i n). i i=1 (4) 3 Mutation. Propagate the particles {ˆθ i, W i n} via N MH steps of a MH algorithm with transition density θ i n K n(θ n ˆθ i n; ζ n) and stationary distribution π n(θ). An approximation of E πn [h(θ)] is given by h n,n = 1 N N h(θn)w i n. i i=1 (5)

14 Remarks Correction Step: reweight particles from iteration n 1 to create importance sampling approximation of E πn [h(θ)] Selection Step: the resampling of the particles... (good) equalizes the particle weights and thereby increases accuracy of subsequent importance sampling approximations; (not good) adds a bit of noise to the MC approximation. Mutation Step: adapts particles to posterior π n(θ); imagine we don t do it: then we would be using draws from prior p(θ) to approximate posterior π(θ), which can t be good! n θ1

15 Theoretical Properties Goal: strong law of large numbers (SLLN) and central limit theorem (CLT) as N for every iteration n = 1,..., N φ. Regularity conditions: proper prior; bounded likelihood function; 2 + δ posterior moments of h(θ). Idea of proof (Chopin, 2004): proceed recursively Initialization: SLLN and CLT for iid random variables because we sample from prior. Assume that n 1 approximation (with normalized weights) yields N ( 1 N Show that N ( 1 N ) N h(θn 1)W i n 1 i E πn 1 [h(θ)] = N ( 0, Ω ) n 1(h) i=1 ) N h(θn)w i n i E πn [h(θ)] = N ( 0, Ω ) n(h) i=1

16 More on Transition Kernel in Mutation Step Transition kernel K n (θ ˆθ n 1 ; ζ n ): generated by running M steps of a Metropolis-Hastings algorithm. Lessons from DSGE model MCMC: blocking of parameters can reduces persistence of Markov chain; mixture proposal density avoids getting stuck. Blocking: Partition the parameter vector θ n into N blocks equally sized blocks, denoted by θ n,b, b = 1,..., N blocks. (We generate the blocks for n = 1,..., N φ randomly prior to running the SMC algorithm.) Example: random walk proposal density: ( ) ϑ b (θn,b,m 1, i θn, b,m, i Σ n,b) N θn,b,m 1, i cnσ 2 n,b.

17 Adaptive Choice of ζ n = (Σ n, c n ) Infeasible adaption: Let Σ n = V πn [θ]. Adjust scaling factor according to c n = c n 1f ( 1 R n 1(ζ n 1) ), where R n 1( ) is population rejection rate from iteration n 1 and e16(x 0.25) f (x) = e. 16(x 0.25) Feasible adaption use output from stage n 1 to replace ζ n by ˆζ n : Use particle approximations of E πn [θ] and V πn [θ] based on {θ i n 1, W i n} N i=1. Use actual rejection rate from stage n 1 to calculate ĉ n = ĉ n 1f ( ˆRn 1(ˆζ n 1) ). Result: under suitable regularity conditions replacing ζ n by ˆζ n where n(ˆζ n ζ n ) = O p (1) does not affect the asymptotic variance of the MC approximation.

18 Adaption of SMC Algorithm for Stylized State-Space Model 1.0 Acceptance Rate Scale Parameter c Effective Sample Size n Notes: The dashed line in the top panel indicates the target acceptance rate of 0.25.

19 More on Resampling So far, we have used multinomial resampling. It s fairly intuitive and it is straightforward to obtain a CLT. But: multinominal resampling is not particularly efficient. The book contains a section on alternative resampling schemes (stratified resampling, residual resampling...) These alternative techniques are designed to achieve a variance reduction. Most resampling algorithms are not parallelizable because they rely on the normalized particle weights.

20 Application 1: Small Scale New Keynesian Model We will take a look at the effect of various tuning choices on accuracy: Tempering schedule λ: λ = 1 is linear, λ > 1 is convex. Number of stages N φ versus number of particles N. Number of blocks in mutation step versus number of particles.

21 Effect of λ on Inefficiency Factors InEff N [ θ] λ Notes: The figure depicts hairs of InEff N [ θ] as function of λ. The inefficiency factors are computed based on N run = 50 runs of the SMC algorithm. Each hair corresponds to a DSGE model parameter.

22 Number of Stages N φ vs Number of Particles N ρ g σ r ρ r ρ z σ g κ σ z π (A) ψ 1 γ (Q) ψ 2 r (A) τ N φ = 400, N = 250 N φ = 200, N = 500 N φ = 100, N = 1000 N φ = 50, N = 2000 N φ = 25, N = 4000 Notes: Plot of V[ θ]/v π [θ] for a specific configuration of the SMC algorithm. The inefficiency factors are computed based on N run = 50 runs of the SMC algorithm. N blocks = 1, λ = 2, N MH = 1.

23 Number of blocks N blocks in Mutation Step vs Number of Particles N ρ g σ g σ z σ r ρ r κ ρ z π (A) ψ 1 τ γ (Q) r (A) ψ 2 Nblocks = 4, N = 250 Nblocks = 2, N = 500 Nblocks = 1, N = 1000 Notes: Plot of V[ θ]/v π [θ] for a specific configuration of the SMC algorithm. The inefficiency factors are computed based on N run = 50 runs of the SMC algorithm. N φ = 100, λ = 2, N MH = 1.

24 A Few Words on Posterior Model Probabilities Posterior model probabilities π i,t = π i,0 p(y 1:T M i ) M j=1 π j,0p(y 1:T M j ) where p(y 1:T M i ) = p(y 1:T θ (i), M i )p(θ (i) M i )dθ (i) For any model: ln p(y 1:T M i ) = T t=1 ln p(y t θ (i), Y 1:t 1, M i )p(θ (i) Y 1:t 1, M i )dθ (i) Marginal data density p(y 1:T M i ) arises as a by-product of SMC.

25 Marginal Likelihood Approximation Recall w i n = [p(y θ i n 1 )]φn φn 1. Then 1 N N w nw i n 1 i i=1 = p φn 1 (Y θ)p(θ) [p(y θ)] φn φn 1 dθ p φ n 1(Y θ)p(θ)dθ p(y θ) φ n p(θ)dθ p(y θ) φ n 1p(θ)dθ Thus, N φ ( ) 1 N w i N nwn 1 i n=1 i=1 p(y θ)p(θ)dθ.

26 SMC Marginal Data Density Estimates N φ = 100 N φ = 400 N Mean(ln ˆp(Y )) SD(ln ˆp(Y )) Mean(ln ˆp(Y )) SD(ln ˆp(Y )) (3.18) (0.20) 1, (1.98) (0.14) 2, (1.65) (0.12) 4, (0.92) (0.07) Notes: Table shows mean and standard deviation of log marginal data density estimates as a function of the number of particles N computed over N run = 50 runs of the SMC sampler with N blocks = 4, λ = 2, and N MH = 1.

27 Application 2: Estimation of Smets and Wouters (2007) Model Benchmark macro model, has been estimated many (many) times. Core of many larger-scale models. 36 estimated parameters. RWMH: 10 million draws (5 million discarded); SMC: 500 stages with 12,000 particles. We run the RWM (using a particular version of a parallelized MCMC) and the SMC algorithm on 24 processors for the same amount of time. We estimate the SW model twenty times using RWM and SMC and get essentially identical results.

28 Application 2: Estimation of Smets and Wouters (2007) Model More interesting question: how does quality of posterior simulators change as one makes the priors more diffuse? Replace Beta by Uniform distributions; increase variances of parameters with Gamma and Normal prior by factor of 3.

29 SW Model with DIFFUSE Prior: Estimation stability RWMH (black) versus SMC (red) l ι w µ p µ w ρ w ξ w r π

30 A Measure of Effective Number of Draws Suppose we could generate iid N eff ( Ê π [θ] approx N E π [θ], 1 N eff V π [θ] draws from posterior, then ). We can measure the variance of Ê π [θ] by running SMC and RWM algorithm repeatedly. Then, N eff V π[θ] V [ Ê π [θ] ]

31 Effective Number of Draws SMC RWMH Parameter Mean STD(Mean) N eff Mean STD(Mean) N eff σ l l ι p h Φ r π ρ b ϕ σ p ξ p ι w µ p ρ w µ w ξ w

32 A Closer Look at the Posterior: Two Modes Parameter Mode 1 Mode 2 ξ w ι w ρ w µ w Log Posterior Mode 1 implies that wage persistence is driven by extremely exogenous persistent wage markup shocks. Mode 2 implies that wage persistence is driven by endogenous amplification of shocks through the wage Calvo and indexation parameter. SMC is able to capture the two modes.

33 A Closer Look at the Posterior: Internal ξ w versus External ρ w Propagation ρ w ξ w

34 Stability of Posterior Computations: RWMH (black) versus SMC (red) P (ξ w > ρ w) P (ρ w > µ w) P (ξ w > µ w) P (ξ p > ρ p) P (ρ p > µ p) P (ξ p > µ p)

35 Marginal Data Density Bayesian model evaluation is based on marginal data density p n (Y ) = [p(y θ)] φn p(θ)dθ. Recall that marginal data density is a by-product of the importance sampler: ˆp n (Y ) = Ẑn = 1 N N i=1 W i n. Algorithm, Method MDD Estimate Standard Deviation SMC, Particle Estimate RWMH, Harmonic Mean

Sequential Monte Carlo Methods

Sequential Monte Carlo Methods University of Pennsylvania EABCN Training School May 10, 2016 Introduction Unfortunately, standard MCMC can be inaccurate, especially in medium and large-scale DSGE models: disentangling importance of