A mean shift break in the US interest rate

We model in this article the monthly structure of the US interest rate in terms of a fractionally integrated process with a deterministic structural change. We show that the order of integration of the series is reduced when a mean shift is included in the regression model to describe the turbulence period at the beginning of the 1980s. In fact, the series appears to be 1(0.61) in contrast to the 1(0.79) process obtained when the mean shift is not considered. Thus, the series is still nonstationary but the mean reversion property of the process is accelerated when the break is taken into account. (C) 2002 Elsevier Science B.V. All rights reserved.