Non-linearities in Real Interest Rate Parity: Evidence from OECD and Asian Developing Economies
This paper investigates the validity real interest rate parity (RIP) for a sample of 19 OECD and Asian developing economies. The distinction of this paper is that we exploit both linearity and non-linear unit root tests as advocated by Dufrénot et al. (Applied Economics, 38, pp. 203–229, 2006) to va...
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| Main Authors: | , , |
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| Format: | E-Article |
| Language: | English |
| Published: |
Taylor & Francis
2010
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| Subjects: | |
| Online Access: | http://ir.unimas.my/id/eprint/18005/1/1226508X.2010.533842 http://ir.unimas.my/id/eprint/18005/ http://dx.doi.org/10.1080/1226508X.2010.533842 |
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| Summary: | This paper investigates the validity real interest rate parity (RIP) for a sample of 19 OECD and Asian developing economies. The distinction of this paper is that we exploit both linearity and non-linear unit root tests as advocated by Dufrénot et al. (Applied Economics, 38, pp. 203–229, 2006) to validate the parity. The major finding are: (i) the alignments from real interest rate differentials (RIDs) are corrected in a non-linear fashion and that the adjustments is asymmetric in both size and speed; (ii) that RIP holds for the developed and developing countries; and (iii) the empirical results are invariant with respect to the US, Japan or Germany as the centre country. |
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