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Revisiting real interest rate parity in Central and Eastern European countries: The Sequential Panel Selection Method

Author

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  • Hsu-Ling Chang

    (Ling Tung University Department of Accounting and Information, Taichung City, Taiwan (R.O.C.))

Abstract

This study uses the Sequential Panel Selection Method (SPSM) proposed by Chortareas and Kapetanios (2009) to investigate the non-stationarity properties of real interest rates in 12 Central and Eastern European (CEE) countries. We are thereby able to test the validity of real interest rate parity (RIRP) among these countries. The SPSM can be used to decompose a panel of real interest rate series into two groups: a group of stationary series and a group of non-stationary series. We identify the stationary processes in the panel and demonstrate that RIRP holds for 10 of the 12 countries studied. Our findings show that real interest rate convergence among these 10 countries exhibits non-linear mean reversion toward RIRP equilibrium. The results have important policy implications for the CEE countries studied.

Suggested Citation

  • Hsu-Ling Chang, 2014. "Revisiting real interest rate parity in Central and Eastern European countries: The Sequential Panel Selection Method," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(2), pages 181-196, June.
    • Handle: RePEc:aka:aoecon:v:64:y:2014:i:2:p:181-196
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    More about this item

    Keywords

    real interest rate parity; sequential panel selection method; Fourier function;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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