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OVER THE PAST DECADE, economists have shown considerable interest in the time series properties of interest rates, with particular attention being paid to the issue of whether interest rates cars be characterized as unit root or meanreverting processes. If interest rates contain unit roots, then a one-time shock to interest rates is perrnanent and its effects cannot be eliminated as time elapses. On the other hand, if interest rates can be characterized as stationary processes, then innovations are transitory and are expected to be reversed. The statiorlarity properties not only are essential in developing an understanding of the nature of shocks to interest rates, but might have important policy implicatlons for the monetary authorities as well. As such, considerable effort has been devoted to forrnally testing whether interest rates are stationary. See, for example, Perron (1988, 1989), Rose (1988), and Stock and Watson …