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Abstract. The debate on the order of integration of interest rates has long focused on the I(1) versus I(0) distinction. In this paper we instead use the wavelet OLS estimator of Jensen (1999)

The dierence in yields between long-term and short-term securities has been used both as a business cycle leading indicator and a s a n i n d icator of the current i m pact of monetary policy. This paper tests for an asymmetry, i n the form of a threshold eect, such that the impact of the yield spread on output i s g r eat e r o n o n e s i de of the threshold than the other. The test allows for an unknown threshold, a n d t h e a s ymptotic distribution of the resulting s tatistic is obtained by the method of Hansen (1996). We test using data from each of the G-7 countries, and nd that, while the yield spread does generally show a s ignicant link with output, only in the U.S. and Canada is there strong evidence of an asymmetry of this t ype. The evidence of asymmetry that we nd suggests a high value of the threshold in both the U.S. a n d C anada.

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