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Mean Reversion of Short-run Interest Rates in Emerging Countries

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  • Bertrand Candelon
  • Luis A. Gil-Alana

Abstract

In this paper we examine the stochastic behavior of short-run interest rates in several emerging countries using fractional integration techniques. We allow for a much richer flexibility in the dynamic behavior of the series than the classical representations based on I(0) or I(1) processes. It appears that for Singapore and Thailand nominal interest rates are mean-reverting, whereas for Mexico, Malaysia, the Philippines, and Korea, the presence of a unit-root test depends on the assumptions regarding the residuals' autocorrelation. The results also suggest that uncovered interest parity (UIP) can only hold for two emerging countries. For the other countries, the stabilization policies in the aftermath of the currency crises have led to the rejection of the UIP hypothesis. Copyright � 2006 The Authors; Journal compilation � Blackwell Publishing Ltd. 2006.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 14 (2006)
Issue (Month): 1 (02)
Pages: 119-135

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Handle: RePEc:bla:reviec:v:14:y:2006:i:1:p:119-135

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Cited by:
  1. Tang, Kin-Boon, 2011. "The precise form of uncovered interest parity: A heterogeneous panel application in ASEAN-5 countries," Economic Modelling, Elsevier, vol. 28(1-2), pages 568-573, January.
  2. Simeon Coleman and Kavita Sirichand, 2011. "Fractional integration and the volatility of UK interest rates," Working Papers 2011/02, Nottingham Trent University, Nottingham Business School, Economics Division.

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