Some researchers, for example, Koop (1992), and Sims (1988), advocated for Bayesian alternatives to unit-root testing over the classical approach using the augmented Dickey-Fuller test (ADF). This paper studies the power of what Koop (1992) has called the "Objective" Bayesian approach to unit-root testing. Koop's "objective" Bayesian test is interesting in light of the call by Phillips (1991a, 1991b) for more objective Bayesian analysis of time series. We apply the "objective" Bayesian unit-root test to a study of long-run purchasing power parity (PPP) in the post-Bretton Woods era and also Monte Carlo simulations. Overall, our results suggest that the "objective" Bayesian test is biased in favor of trend-stationarity. We conclude that, at least for the "objective" Bayesian test, it is not better than the classical ADF approach in unit-root tests, and because of its bias, the "objective" priors suggested by Koop is not appropriate.
Ahking, Francis W., "The Power of the "Objective" Bayesian Unit-Root Test" (2004). Economics Working Papers. Paper 200414.