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Bayesian Inference for a Threshold Autoregression with a Unit Root

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  • Penelope Smith

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

Abstract

A Bayesian approach to distinguishing between nonlinear and unit root behavior offers several practical advantages over equivalent frequentist procedures. Foremost among these advantages is the simplicity of the test. This paper compares the small sample power and size properties of a joint Bayesian test for a unit root and a threshold effect with Caner and Hansen's (2001) frequentist strategy. The results from Monte Carlo experiments indicate that the simpler Bayesian test performs at least as well as Caner and Hansen's procedure.

Suggested Citation

  • Penelope Smith, 2006. "Bayesian Inference for a Threshold Autoregression with a Unit Root," Melbourne Institute Working Paper Series wp2006n20, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  • Handle: RePEc:iae:iaewps:wp2006n20
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    File URL: http://melbourneinstitute.unimelb.edu.au/downloads/working_paper_series/wp2006n20.pdf
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