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A Bayesian Analysis Of The Unit Root Hypothesis Within An Unobserved Components Model

Published online by Cambridge University Press:  11 February 2009

Eric Zivot
Eric Zivot
Affiliation:
University of Washington
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Abstract

In this paper we extend some of Phillips's [4] results to nonlinear unobserved components models and develop a posterior odds ratio test of the unit root hypothesis based on flat and Jeffreys priors. In contrast to the analysis presented by Schotman and van Dijk [9], we utilize a nondegenerate structural representation of the components model that allows us to determine well-behaved Jeffreys priors, posterior densities under flat priors and Jeffreys priors, and posterior odds ratios for the unit root hypothesis without a proper prior for the level parameter. The analysis highlights the importance of the treatment of initial values for inference concerning stationarity and unit roots.

Type
Articles
Information
Econometric Theory , Volume 10 , Issue 3-4 , August 1994 , pp. 552 - 578
Copyright
Copyright © Cambridge University Press 1994

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References

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