One important development in the recent time-series literature is the examination of non linear adjustment mechanisms. Much of the impetus for this interest stems from a large number of studies showing that key macroeconomic variables such as real GDP, unemployment, and industrial production display asymmetric adjustment over the course of the business cycle. For example, Neftci (1984), Falk (1986), DeLong and Summers (1988), Terasvirta and Anderson (1992), Sichel (1993), Beaudry and Koop (1993), Potter (1995), Ramsey and Rothman (1996) and Bradley and Jensen (1997) ABSTRACT Cointegration among interest rates for instruments with different maturities has been widely tested with mixed results. This paper proposes an extension to the Engle-Granger testing strategy by permitting asymmetry in the adjustment toward equilibrium in two different ways. We demonstrate that our test has good power and size properties over the Engle-Granger test when there are asymmetric departures fi-om equilibrium. Empirical tests using US yields confirm the asymmetric nature of error correction among interest rates of different maturities.JEL Classifications: E43, C22, C50

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Macroeconomic variables have been shown to display a wide variety of structural breaks of unknown number, duration and form. This poses a challenge since improperly modelled breaks can result in a seriously misspecified model. In this paper, we develop a new test for stationarity that approximates the unknown form of structural breaks using a selected frequency component from a Fourier approximation. Our proposed test performs quite well when breaks are gradual, and shows reasonable power. The appropriate use of the test is illustrated by examining real exchange rates in the post-Bretton Woods period. Copyright 2006 The Authors Journal compilation 2006 Blackwell Publishing Ltd.

This article devises a method to separate the Global Terrorism Database (GTD) into transnational and domestic terrorist incidents. This decomposition is essential for the understanding of some terrorism phenomena when the two types of terrorism are hypothesized to have different impacts. For example, transnational terrorism may have a greater adverse effect than domestic terrorism on economic growth. Moreover, the causes of the two types of terrorism may differ. Once the data are separated, we apply a calibration method to address some issues with GTD data -namely, the missing data for 1993 and different coding procedures used before 1998. In particular, we calibrate the GTD transnational terrorist incidents to ITERATE transnational terrorist incidents to address GTD's undercounting of incidents in much of the 1970s and its overcounting of incidents in much of the 1990s. Given our assumption that analogous errors characterize domestic terrorist events in GTD, we apply the same calibrations to adjust GTD domestic incidents. The second part of the article investigates the dynamic aspects of GTD domestic and transnational terrorist incidents, based on the calibrated data. Contemporaneous and lagged cross-correlations for the two types of terrorist incidents are computed for component time series involving casualties, deaths, assassinations, bombings, and armed attacks. We find a large cross-correlation between domestic and transnational terrorist incidents that persists over a number of periods. A key finding is that shocks to domestic terrorism result in persistent effects on transnational terrorism; however, the reverse is not true. This finding suggests that domestic terrorism can spill over to transnational terrorism, so that prime-target countries cannot ignore domestic terrorism abroad and may need to assist in curbing this homegrown terrorism.

We develop a unit-root test based on a simple variant of Gallant's (1981) flexible Fourier form. The test relies on the fact that a series with several smooth structural breaks can often be approximated using the low frequency components of a Fourier expansion. Hence, it is possible to test for a unit root without having to model the precise form of the break. Our unit root test employing Fourier approximation has good size and power for the types of breaks often used in economic analysis. The appropriate use of the test is illustrated using several interest rate spreads.JEL Classifications: C12, C22, E17

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