Testing the Fed and the Graham & Dodd models: Asymmetric vs. Symmetric Adjustment

We examine the empirical validity of the Fed model and the Graham & Dodd model for five countries and over a time period spanning three decades by applying the Enders and Granger 1998) and Enders and Siklos (2001) threshold unit-root and cointegration tests. Our results support the hypothesis that the adjustment back to equilibrium is asymmetric.