Stationarity and structural breaks — evidence from classical and Bayesian approaches

The purpose of this paper is to analyze and compare the results of applying classical and Bayesian methods to testing for a unit root in time series with a single endogenous structural break. We utilize a data set of macroeconomic time series for the Mexican economy similar to the Nelson–Plosser one. Under both approaches, we make use of innovational outlier models allowing for an unknown break in the trend function. Classical inference relies on bootstrapped critical values, in order to make inference comparable to the finite sample Bayesian one. Results from both approaches are discussed and compared.