A Monte Carlo experiment is used to examine the size and power properties of alternative Bayesian tests for unit roots. Four different prior distributions for the root that is potentially unity – a uniform prior and priors attributable to Jeffreys, Lubrano, and Berger and Yang – are used in conjunction with two testing procedures: a credible interval test and a Bayes factor test. Two extensions are also considered: a test based on model averaging with different priors and a test with a hierarchical prior for a hyperparameter. The tests are applied to both trending and non-trending series. Our results favor the use of a prior suggested by Lubrano. Outcomes from applying the tests to some Australian macroeconomic time series are presented.
Xia, C. and Griffiths, W. (2012), "Bayesian Unit Root Testing: The Effect of Choice of Prior on Test Outcomes", Terrell, D. and Millimet, D. (Ed.) 30th Anniversary Edition (Advances in Econometrics, Vol. 30), Emerald Group Publishing Limited, Bingley, pp. 27-57. https://doi.org/10.1108/S0731-9053(2012)0000030007Download as .RIS
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