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Unit-Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates

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  • Enders, Walter
  • Granger, Clive W J

Abstract

This article develops critical values to test the null hypothesis of a unit root against the alternative of stationarity with asymmetric adjustment. Specific attention is paid to threshold and momentum threshold autoregressive processes. The standard Dickey-Fuller tests emerge as a special case. Within a reasonable range of adjustment parameters, the power of the new tests is shown to be greater than that of the corresponding Dickey-Fuller test. The use of the tests is illustrated using the term structure of interest rates. It is shown that the movements toward the long-run equilibrium relationship are best estimated as an asymmetric process.

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Bibliographic Info

Article provided by American Statistical Association in its journal Journal of Business and Economic Statistics.

Volume (Year): 16 (1998)
Issue (Month): 3 (July)
Pages: 304-11

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Handle: RePEc:bes:jnlbes:v:16:y:1998:i:3:p:304-11

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