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

Walter Enders and Clive Granger

Journal of Business & Economic Statistics, 1998, vol. 16, issue 3, 304-11

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.

Date: 1998
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