The strength of evidence for unit autoregressive roots and structural breaks: A Bayesian perspective

Economic time series may be generated by a process with a unit autoregressive root, and the generating process may exhibit an abrupt break in trend. It is well known that the outcomes of classical tests for either one of these phenomena can be seriously influenced when the presence of the other is ignored. Therefore, care is required in disentangling evidence in the data supporting the two phenomena, and there is some question as to the extent to which such disentanglement is feasible. We approach this question from a Bayesian perspective, assessing the impact on the strength of evidence for each of the phenomena in the presence of the other.

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