Testing model specification in approximate Bayesian computation

Abstract

We present a procedure to diagnose model misspecification in situations where inference is performed using approximate Bayesian computation. We demonstrate theoretically, and empirically that this procedure can consistently detect the presence of model misspecification. Our examples demonstrates that this approach delivers good finite-sample performance and is computational less onerous than existing approaches, all of which require re-running the inference algorithm. An empirical application to modelling exchange rate log returns using a g-and-k distribution completes the paper.