
196 Current Trends in Bayesian Methodology with Applications
0 2 4 6 8 10 12
0 2 4 6 8 10
distance
FIGURE 9.5
Plots of prior (—) and posterior (– –) densities of distance to
ˆ
R
2
in Example
4.
appropria te. Figure 9.5 plots the prior and posterior dens ities of the distance
from
ˆ
R
q
which shows a huge increase in belief for the estimate.
TABLE 9.6
Estimated correlations in Example 4 based on H
2
0
.
CAN JAP FRA ITA GER
US 0.823 0.727 −0.454 −0.508 0.146
CAN 0.495 −0.094 −0.095 0.186
JAP −0.535 −0.606 0.057
FRA 0.872 0.06 5
ITA 0.077
From this analysis we see that we have strong evidence that the five cur -
rencies are related by two common variables. We can examine