Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/70295
Authors: 
Kunst, Robert M.
Year of Publication: 
1998
Series/Report no.: 
Reihe Ökonomie / Economics Series, Institut für Höhere Studien (IHS) 58
Abstract: 
The problem of optimal decision among unit roots, trend stationarity, and trend stationarity with structural breaks is considered. Each class is represented by a hierarchically random process whose parameters are distributed in a non-informative way. The prior frequency for all three processes is the same. Observed trajectories are classified by two information condenser statistics zeta1 and zeta2. zeta1 is the traditional Dickey-Fuller t-test statistic that allows for a linear trend. zeta2 is a heuristic statistic that condenses information on structural breaks. Two loss functions are considered for determining decision contours within the (zeta1, zeta2) space. Whereas quadratic discrete loss expresses the interest of a researcher attempting to find out the true model, prediction error loss expresses the interest of a forecaster who sees models as intermediate aims. For both loss functions and the empirically relevant sample sizes of T=50, 100, 150, 200, optimal decision contours are established by means of Monte Carlo simulation.
Subjects: 
time series
integrated processes
structural breaks
loss
function
JEL: 
C22
C44
Document Type: 
Working Paper

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