Bayesian Routes and Unit Roots: de rebus prioribus semper est disputandum

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Discussion Paper

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This paper provides detailed responses to the following 8 discussants of my paper “To Criticize the Critics: An Objective Bayesian Analysis of Stochastic Trends”: Gary Koop and Mark Steel; Edward Leamer; In-Moo Kim and G. S. Maddala Dale J. Poirier; Peter C. Schotman and Herman K. van Dijk; James H. Stock; David Dejong and Charles H. Whiteman; and Christopher Sims. This reply puts new emphasis on the call made in the earlier paper for objective Bayesian analysis in time series; it underlines the need for a new approach, especially with regard to posterior odds testing; and it draws attention to a new methodology of Bayesian analysis developed in a recent paper by Phillips-Ploberger (1991). Some new simulations that shed light on certain comments of the discussants are proven; new empirical evidence is reported with the extended Nelson-Plosser data supplied by Schotman and van Dijk; and the new Phillips-Ploberger posterior odds test is given a brief empirical illustration.

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