Is the effective federal funds rate stationary?

General DSGE Modeling Macroeconomic Model Data Base
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  1. There is some confusion here. The opposite of stationary is not integrated of order 1. Structural breaks also mean something is not stationary.
  2. If something is integrated, a VAR can still be in levels. See Sims Stock Watson (1992) - Inference in linear time series models with some unit roots.
  3. You need to be careful with unit root tests. They usually have low power. Failure to reject the null in an ADF-test does not mean the null of a unit root is actually true.
  4. The correct approach often depends on what you are trying to achieve. For some applications, the distinction between an exact unit root and something very persistent is nothing to worry about.
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