UNIT-ROOT TESTS AND ASYMMETRIC ADJUSTMENT WITH AN EXAMPLE USING THE TERM STRUCTURE OF INTEREST-RATES

This article develops critical values to test the null hypothesis of a unit root against the alternative of stationarity with asymmetric adj ustment. Specific attention is paid to threshold and momentum threshol d autoregressive processes. The standard Dickey-Fuller tests emerge as a special case. Within a reasonable range of adjustment parameters, t he power of the new tests is shown to be greater than that of the corr esponding Dickey-Fuller test. The use of the tests is illustrated usin g 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.