Is there a connection between monetary unification and real economic integration? Evidence from regime-switching stationarity tests
AbstractWe investigate the extent of real convergence among G7 economies in terms of long-run real interest parity. A novel approach is applied where unit-root tests of real interest differentials are embedded within a Markov regime-switching framework. Whereas standard univariate unit-root tests provide little support for parity, we find real convergence is present after allowing for regime switches in real interest misalignments. However, differentials across members of the euro zone are likely to exhibit greater persistence despite nominal convergence. It is non-sequitur to infer from monetary unification that nominal convergence is necessarily conducive to real interest realignments or preventive of misalignments.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Money and Finance.
Volume (Year): 27 (2008)
Issue (Month): 6 (October)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/30443
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Goodwin, Barry K. & Grennes, Thomas J., 1994. "Real interest rate equalization and the integration of international financial markets," Journal of International Money and Finance, Elsevier, vol. 13(1), pages 107-124, February.
- Dahlquist, Magnus & Gray, Stephen F., 2000. "Regime-switching and interest rates in the European monetary system," Journal of International Economics, Elsevier, vol. 50(2), pages 399-419, April.
- Mancuso, Anthony J. & Goodwin, Barry K. & Grennes, Thomas J., 2003. "Nonlinear aspects of capital market integration and real interest rate equalization," International Review of Economics & Finance, Elsevier, vol. 12(3), pages 283-303.
- Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992.
"Efficient Tests for an Autoregressive Unit Root,"
NBER Technical Working Papers
0130, National Bureau of Economic Research, Inc.
- Stilianos Fountas & Jyh-lin Wu, 1998.
"Testing for Real Interest Rate Convergence in European Countries,"
24, National University of Ireland Galway, Department of Economics, revised 1998.
- Fountas, Stilianos & Wu, Jyh-lin, 1999. "Testing for Real Interest Rate Convergence in European Countries," Scottish Journal of Political Economy, Scottish Economic Society, vol. 46(2), pages 158-74, May.
- Alex Luiz Ferreira, 2004. "Are Real Interest Differentials Caused by Frictions in Goods or Assets Markets, Real or Nominal Shocks?," Studies in Economics 0407, Department of Economics, University of Kent.
- Philippe Jorion & Frederic Mishkin, 1991.
"A Multi-Country Comparison of Term Structure Forecasts at Long Horizons,"
NBER Working Papers
3574, National Bureau of Economic Research, Inc.
- Jorion, Philippe & Mishkin, Frederic, 1991. "A multicountry comparison of term-structure forecasts at long horizons," Journal of Financial Economics, Elsevier, vol. 29(1), pages 59-80, March.
- Mishkin, Frederic S, 1984.
" Are Real Interest Rates Equal across Countries? An Empirical Investigation of International Parity Conditions,"
Journal of Finance,
American Finance Association, vol. 39(5), pages 1345-57, December.
- Frederic S. Mishkin, 1982. "Are Real Interest Rates Equal Across Countries? An Empirical Investigation of International Parity Conditions," NBER Working Papers 1048, National Bureau of Economic Research, Inc.
- Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
- Koedijk, Kees G & Kool, Clemens J M, 1995.
"Future Inflation and the Information in International Term Structures,"
Springer, vol. 20(2), pages 217-42.
- Koedijk, C.G. & Kool, C.J.M., 1995. "Future inflation and the information in international term structures," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3108706, Tilburg University.
- Nakagawa, Hironobu, 2002. "Real exchange rates and real interest differentials: implications of nonlinear adjustment in real exchange rates," Journal of Monetary Economics, Elsevier, vol. 49(3), pages 629-649, April.
- Philip Arestis & Andrew Brown & Kostas Mouratidis & Malcolm Sawyer, 2002. "The Euro: Reflections on the first three years," International Review of Applied Economics, Taylor & Francis Journals, vol. 16(1), pages 1-17.
- Jyh-Lin Wu & Show-Lin Chen, 1998. "A Re-examination of Real Interest Rate Parity," Canadian Journal of Economics, Canadian Economics Association, vol. 31(4), pages 837-851, November.
- Angelos Kanas & Georgios Tsiotas, 2005. "Real interest rates linkages between the USA and the UK in the postwar period," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(3), pages 251-262.
- Hein, Eckhard & Truger, Achim, 2005. "European Monetary Union: nominal convergence, real divergence and slow growth?," Structural Change and Economic Dynamics, Elsevier, vol. 16(1), pages 7-33, March.
- Hafer, R W & Kutan, A M, 1994. "A Long-Run View of German Dominance and the Degree of Policy Convergence in the EMS," Economic Inquiry, Western Economic Association International, vol. 32(4), pages 684-95, October.
- Andrew G Haldane & Mahmood Pradhan, 1992. "Testing real interest parity in the European Monetary System," Bank of England working papers 2, Bank of England.
- Moosa, Imad A & Bhatti, Razzaque H, 1996. "Some Evidence on Mean Reversion in ex ante Real Interest Rates," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(2), pages 177-91, May.
- Cavaglia, Stefano, 1992. "The persistence of real interest differentials: A Kalman filtering approach," Journal of Monetary Economics, Elsevier, vol. 29(3), pages 429-443, June.
- Stefan Gerlach, 1995.
"The information content of the term structure: evidence for Germany,"
BIS Working Papers
29, Bank for International Settlements.
- Gerlach, Stefan, 1997. "The Information Content of the Term Structure: Evidence for Germany," Empirical Economics, Springer, vol. 22(2), pages 161-79.
- Gerlach, Stefan, 1995. "The Information Content of the Term Structure: Evidence for Germany," CEPR Discussion Papers 1264, C.E.P.R. Discussion Papers.
- Serena Ng & Pierre Perron, 1997.
"Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power,"
Boston College Working Papers in Economics
369, Boston College Department of Economics, revised 01 Sep 2000.
- Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
- Holmes, Mark J., 2002. "Does long-run real interest parity hold among EU countries? Some new panel data evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(4), pages 733-746.
- Van Poeck, Andre & Van Gompel, Johan, 1994. "Dominant interest and inflation differentials within the EMS: A comment," European Economic Review, Elsevier, vol. 38(8), pages 1661-1663, October.
- S. Young Chung & William J. Crowder, 2004. "Why Are Real Interest Rates Not Equalized Internationally?," Southern Economic Journal, Southern Economic Association, vol. 71(2), pages 441-458, October.
- Mishkin, Frederic S., 1991. "A multi-country study of the information in the shorter maturity term structure about future inflation," Journal of International Money and Finance, Elsevier, vol. 10(1), pages 2-22, March.
- Rossi, Sergio, 2004. "The enlargement of the euro area: what lessons can be learned from EMU?," Journal of Asian Economics, Elsevier, vol. 14(6), pages 947-970, January.
- Sebastian Schich, 1999. "The information content of the German term structure regarding inflation," Applied Financial Economics, Taylor & Francis Journals, vol. 9(4), pages 385-395.
- Kanas, Angelos & Genius, Margarita, 2005. "Regime (non)stationarity in the US/UK real exchange rate," Economics Letters, Elsevier, vol. 87(3), pages 407-413, June.
- Dumas, Bernard, 1992. "Dynamic Equilibrium and the Real Exchange Rate in a Spatially Separated World," Review of Financial Studies, Society for Financial Studies, vol. 5(2), pages 153-80.
- Taylor, Mark P. & Peel, David A., 2000. "Nonlinear adjustment, long-run equilibrium and exchange rate fundamentals," Journal of International Money and Finance, Elsevier, vol. 19(1), pages 33-53, February.
- MacDonald, Ronald & Taylor, Mark P, 1989. "Interest Rate Parity: Some New Evidence," Bulletin of Economic Research, Wiley Blackwell, vol. 41(4), pages 255-74, October.
- Daniel Choi & Mark Holmes, 2014. "Budget deficits and real interest rates: a regime-switching reflection on Ricardian Equivalence," Journal of Economics and Finance, Springer, vol. 38(1), pages 71-83, January.
- Yunus, Nafeesa & Swanson, Peggy E., 2012. "Changing integration of EMU public property markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(1), pages 194-208.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.