Transformation of variables (Metropolis Hastings) Say I have a bunch of data from a Poisson distribution and I want to find out my posterior i.e. I'm data fitting:
$p(\lambda | X) \sim p(X|\lambda)p(\lambda)$
where $p(X|\lambda) = \frac{\exp(-\lambda)\lambda^x}{x!}$ so that my log-likelihood looks like:
$\log \mathcal{L}(\lambda|X) \sim x \log\lambda - \lambda$
Now as $\lambda > 0$, I transform my coordinates to be $\alpha = \log \lambda$. My new distribution looks like:
$p(X|\alpha) = \frac{\exp(-\exp(\alpha))\exp(\alpha x)}{x!}\cdot \bf{\exp(\alpha)}$
where the final $\exp(\alpha)$ comes from the Jacobian of the transformation. 
This makes:
$\log \mathcal{L}(\lambda|X) \sim -\exp(\alpha) + \alpha x + \bf{\alpha}$
where the final $\bf{\alpha}$ in the new log-likelihood is from the earlier Jacobian.
The problem I'm having is that if I include that new $\alpha$ then my Metropolis-Hastings MCMC gives me a result that is incorrect. If I use a log-likehood that excludes it:
$\log \mathcal{L}(\lambda|X) \sim -\exp(\alpha) + \alpha x$
then I get correct results.
My question is:
Why does the Metropolis-Hastings algorithm not care about the Jacobian?
 A: You do not need the $\alpha$ since it is a parameter. The change of variables formula applies to the variable with respect to which you are "integrating". It is $x$ in your case. So MH is right to demand that you remove the excess factor.
So what you really have is:
$$
p(X|\alpha) = \frac{\exp(-\exp(\alpha))\exp(\alpha x)}{x!}
$$
had you applied some transformation to your $x$ variable - then the change of variables foremula should be used.
EDIT To understand what's going on, think of a normal RV $X \sim \mathcal{N}(\mu ,\sigma^2)$. So $p(X|\mu,\sigma^2)$ is the density. If you transform $\mu$ with any transformation $f$, you get the new variable is $Y \sim \mathcal{N}(f(\mu) ,\sigma^2)$ and no jacobian is necessary. I hope you agree (if not, I'll have to write more in tex...).
If you want $\mathcal{P}(X\in A|\alpha)$ you'd integrate $x$ and keep $\alpha$ fixed - that's what I mean when I say "integrate". Probability is all about integration, after all.
So in the end you have $p(x|\alpha)$ with no extra jacobian term. Then proceed as usual with bayes' rule etc and you'll get the "right" density.
A: Check your code, particularly the factors of N (number of data points) appearing in the likelihood. I find consistent results with the Jacobian factor (so the extra alpha) included in the log-posterior, and inconsistent inferences when I do not include the Jacobian (the opposite to what you say you are finding). The Jacobian comes in due to the prior, NOT the likelihood; in your analysis you implicitly assume a flat prior on lambda, so you need to translate this into a prior on alpha that contains the same assumptions (it will no longer be flat, of course) - the Jacobian factor does this translation for you.
