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A Decision Theoretic Analysis of the Unit Root Hypothesis Using Mixtures of Elliptical Models

  • Koop, G.
  • Steel, M.F.J.

This paper develops a formal decision theoretic approach to testing for a unit root in economic time series. The approach is empirically implemented by specifying a loss function based on predictive variances; models are chosen so as to minimize expected loss. In addition, the paper broadens the class of likelihood functions traditionally considered in the Bayesian unit root literature. Empirical results indicate that, while the posterior probability of trend-stationarity is quite high for most of the series considered, the unit root model is often selected in the decision theoretic analysis.

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Paper provided by Tilburg - Center for Economic Research in its series Papers with number 9150.

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Length: 28 pages
Date of creation: 1991
Date of revision:
Handle: RePEc:fth:tilbur:9150
Phone: 31 13 4663050
Fax: 31 13 4663066
Web page:

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  1. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
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