Do Interest Rates Follow Unit-Root Processes? Evidence from Cross-Maturity Treasury Bill Yields

摘要: Abstract. It is widely reported in the literature that interest rates follow integrated processes. Many empirical studies have, fact, taken this result as a maintained hypothesis. This article demonstrates failure to reject hypothesis contain unit root may be due severe power problem of standard test procedures small samples. We analyze panel cross-maturity Treasury-bill yield series by employing panel-based test. exploits variations data improve estimation efficiency and more powerful than tests for roots. The critical values statistics are computed Monte Carlo simulations tailored our found null each contains can decisively rejected. Our findings cast some doubt on previous rely nonstationarity assumption rates.