Fazlollah Lak

This paper investigates the new prior distribution on the Unobserved-ARCH unit root test. Monte Carlo simulations show that the sample size is seriously eective in eciency of Bayesian test. To improve the performance of Bayesian test for unit root we propose a new Bayesian test that is robust in the presence of stationary and nonstationary Unobserved-ARCH. The nite sample property of the proposed test statistic is evaluated using Monte Carlo studies. Applying the developed method, we test the policy of daily exchange rate of the German Marc with respect to the Greek Drachma.