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Reconsidering Real Interest Parity for Traded and Nontraded Goods

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  • Jaebeom Kim

Abstract

The goal of this paper is to examine the hypothesis of real interest rate parity by contrasting real interest rates across traded and nontraded goods under flexible exchange rates. We employ panel unit root tests to investigate the stationarity of real interest rate differentials. In particular, empirical results support the mean‐reverting property of real interest rate differentials for interest rates measured in terms of traded goods.

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  • Jaebeom Kim, 2006. "Reconsidering Real Interest Parity for Traded and Nontraded Goods," Review of International Economics, Wiley Blackwell, vol. 14(2), pages 306-315, May.
    • Handle: RePEc:bla:reviec:v:14:y:2006:i:2:p:306-315
    DOI: 10.1111/j.1467-9396.2006.00577.x
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    1. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 141-220, National Bureau of Economic Research, Inc.
    2. Martin Feldstein, 1991. "Domestic Saving and International Capital Movements in the Long Run and the Short Run," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 331-353, National Bureau of Economic Research, Inc.
    3. John F. O. Bilson & Richard C. Marston, 1984. "Exchange Rate Theory and Practice," NBER Books, National Bureau of Economic Research, Inc, number bils84-1, March.
    4. Robert E. Cumby & Maurice Obstfeld, 1984. "International Interest Rate and Price Level Linkages under Flexible Exchange Rates: A Review of Recent Evidence," NBER Chapters, in: Exchange Rate Theory and Practice, pages 121-152, National Bureau of Economic Research, Inc.
    5. Engle, R. F. & Granger, C. W. J. (ed.), 1991. "Long-Run Economic Relationships: Readings in Cointegration," OUP Catalogue, Oxford University Press, number 9780198283393, Decembrie.
    6. Breuer, Janice B. & McNown, Robert & Wallace, Myles, 2000. "The Quest for Purchasing Power Parity with a Series-specific Unit Root Test Using Panel Data," Working Papers 112956, Clemson University, Center for International Trade.
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    Cited by:

    1. Mariam Camarero & Josep Lluis Carrion‐I‐Silvestre & Cecilio Tamarit, 2009. "Testing For Real Interest Rate Parity Using Panel Stationarity Tests With Dependence: A Note," Manchester School, University of Manchester, vol. 77(1), pages 112-126, January.
    2. Ya-Chi Lin & Kuo-Chun Yeh, 2017. "Measuring the end of the European financial crisis," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 25(4), pages 663-680, October.
    3. Ya-Chi Lin & Kuo-Chun Yeh, 2016. "The Impact of 2007/08 Financial Crisis on the Stability and Enlargement of the EMU," Review of Development Economics, Wiley Blackwell, vol. 20(2), pages 624-634, May.

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