BAYESIAN ENCOMPASSING TESTS OF A UNIT-ROOT HYPOTHESIS

The object of this paper is to report, for a simple testing problem of a unit root hypothesis, some experience regarding the numerical probl ems involved by using a Bayesian encompassing test, i.e., a Bayesian p rocedure that treats the null and the alternative hypotheses as differ ent models, the null one and the alternative one, that share a same sa mple space but with different parameter spaces. Numerical procedures a nd efficient simulations are discussed briefly, and the numerical resu lts so obtained are used to evaluate the meaning of the prior specific ation and of the empirical evidence about a unit root inference.