IS THE REAL INTEREST-RATE UNSTABLE - SOME NEW EVIDENCE

Prior studies typically report that real Treasury bill returns have a unit root. The unit-root findings are not consistent with the long-run Fisher effect and consumption-based asset pricing models. This study examines a data set of ex ante real returns on US Treasury bills and c ommercial papers. The statistical analysis employs a new modified Dick ey-Fuller test, which has better power than standard unit-root tests. In contrast to previous findings, strong evidence of stationarity is f ound for all the real return series under examination. Implications of the results are discussed.