A Robust, Uniformly Most Powerful Unit Root Test

Jeffrey A. Mills ()

University of Cincinnati, Economics Working Papers Series from University of Cincinnati, Department of Economics

Abstract: Mills (2008) examines an alternative procedure for testing precise hypotheses based on specifying a set of precise alternative hypotheses. Mills shows that this method resolves several problems with the standard procedure, particularly the Jeffreys-Lindley-Bartlett paradox, and has desirable properties. This paper applies this new testing procedure to the unit root hypothesis for an AR(1) model. A Monte Carlo simulation experiment is conducted to study the performance of the test in terms of robustness to the specification of the prior distribution. The resulting new test is compared with the best alternatives, namely the tests of Conigliani and Spezzaferri (2007) and Elliot, Rothenberg and Stock (1996).

Date: 2009, Revised 2009
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Persistent link: https://EconPapers.repec.org/RePEc:cin:ucecwp:2009-02

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