It is well-known that interest rates are extremely persistent, yet they are best modeled and understood as stationary processes. These properties are contradictory in the workhorse Gaussian affine term structure model in which the persistent data often result in unit roots that imply...

The paper introduces the HD(1), a Markovian process of order one with reversion rates that are faster the farther the process is from equilibrium. The aHD(1) approximation is introduced to allow for an estimation-calibration procedure based on available ARMA routines. Critical values of unit...