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Real Interest Rate Parity: Long-Run and Short-Run Analysis Using Wavelets

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  • Keshab Shrestha

    ()

  • Kok Tan

    ()

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    Abstract

    In this article, long-run and short-run relationships among real interest rates in G-7 countries are empirically analyzed. The evidence suggests the existence of long-run relationships among these real interest rates. However, the long-run relationship is not an equality relationship. Short-run relationships are estimated using dynamic simultaneous equation models. They reveal that the real interest rates of non-U.S. G-7 countries react and adjust to long-run disequilibrium conditions. A more detailed analysis based on wavelet transform indicates the existence of both short-run and long-run relationships; however, strict interest rate parity does not seem to hold true. Copyright Springer Science + Business Media, Inc. 2005

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    Bibliographic Info

    Article provided by Springer in its journal Review of Quantitative Finance and Accounting.

    Volume (Year): 25 (2005)
    Issue (Month): 2 (September)
    Pages: 139-157

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    Handle: RePEc:kap:rqfnac:v:25:y:2005:i:2:p:139-157

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    Web page: http://springerlink.metapress.com/link.asp?id=102990

    Related research

    Keywords: real interest rate parity; short-run; long-run; wavelet;

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    Cited by:
    1. Song, Nianfu & Chang, Sun Joseph & Aguilar, Francisco X., 2011. "U.S. softwood lumber demand and supply estimation using cointegration in dynamic equations," Journal of Forest Economics, Elsevier, vol. 17(1), pages 19-33, January.

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