During the past few years investigators have found evidence indicating that various time‐series representing business cycles, such as production and unemployment, may be nonlinear. In this paper it is assumed that if the time‐series is nonlinear, then it can be adequately described by a smooth transition autoregressive (STAR) model. The paper describes the application of these models to quarterly logarithmic production indices for 13 countries and ‘Europe’. Tests reject linearity for most of these series, and estimated STAR models indicate that the nonlinearity is needed mainly to describe the responses of production to large negative shocks such as oil price shocks.

Abstract-This paper shows that yields to maturity of U.S. Treasury bills are cointegrated, and that during periods when the Federal Reserve specifically targeted short-term interest rates, the spreads between yields of different maturity define the cointegrating vectors. This cointegrating relationship implies that a single non-stationary common factor underlies the time series behavior of each yield to maturity and that risk premia are stationary. An error correction model which uses spreads as Ihe error correction terms is unstable over the Federal Reserve's policy regime changes, but a model using post 1982 data is stable and is shown to be useful for forecasting changes in yields.

This paper uses nonlinear error correction models to study yield movements in the US Treasury Bill Market. Nonlinear error correction arises because portfolio adjustment is an ‘on‐off’ process, which occurs only when disequilibrium in the bill market is large enough to induce investors to incur the transaction costs associated with buying/selling bills. This, together with heterogeneity of transaction costs, implies that the strength of aggregate error correction depends on both the distribution of costs and the extent of disequilibrium in the market. Smooth transition models are used to describe an aggregate adjustment process which is strong when the market is distant from equilibrium, but becomes weaker as the market approaches equilibrium. Linearity tests indicate that the types of nonlinearities that would be induced by transactions costs are statistically significant, and estimated models which incororate these nonlinearities outperform their linear counterparts, both in sample and out of sample.

Abstract-This paper shows that yields to maturity of U.S. Treasury bills are cointegrated, and that during periods when the Federal Reserve specifically targeted short-term interest rates, the spreads between yields of different maturity define the cointegrating vectors. This cointegrating relationship implies that a single non-stationary common factor underlies the time series behavior of each yield to maturity and that risk premia are stationary. An error correction model which uses spreads as Ihe error correction terms is unstable over the Federal Reserve's policy regime changes, but a model using post 1982 data is stable and is shown to be useful for forecasting changes in yields.