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The Interdependence of Australian and Foreign Real Interest Rates

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  • Felmingham, Bruce
  • Qing, Zhang
  • Healy, Tanya

Abstract

We assess the interdependence of the Australian and foreign (USA, Japan, UK, Canada, Germany, NZ) short-term real rates of interest using a quarterly time series: 1970(1) to 1997(4). Applying Zivot and Andrews (1992) tests for stationarity subject to structural breaks we find all series to be 1(1). Structural breaks occurring in each series at different times are explained by policy changes, institutional characteristics or shocks such as the second oil crisis. Conventional bivariate cointegration tests (without breaks) provide limited evidence of interdependence, however using the Gregory Hansen (1996) technique it is clear that foreign and Australian rates are interrelated once structural breaks are accommodated. Multivariate cointegration and error correction modelling confirm this finding. Policy implications are indicated. Copyright 2000 by The Economic Society of Australia.

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Bibliographic Info

Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 76 (2000)
Issue (Month): 233 (June)
Pages: 163-71

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Handle: RePEc:bla:ecorec:v:76:y:2000:i:233:p:163-71

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Cited by:
  1. Christian Dreger & Christian Schumacher, 2003. "Are Real Interest Rates Cointegrated? Further evidence based on paneleconometric methods," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 139(I), pages 41-53, March.
  2. Renee Fry, 2002. "International SVAR Factor Modelling," School of Economics and Finance Discussion Papers and Working Papers Series 109, School of Economics and Finance, Queensland University of Technology.

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