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Further Evidence on the Real Interest Rate Parity Hypothesis in Central and East European Countries: Unit Roots and Nonlinearities

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  • Juan Carlos Cuestas
  • Barry Harrison

Abstract

This paper analyzes the empirical fulfillment of the real interest rate parity (RIRP) theory for a pool of central and east European countries. To do so, we apply the recently developed Ng and Perron (2001) unit root tests, which are corrected versions of existing unit root tests, and the Kapetanios et al. (2003) unit root test, which generalizes the alternative hypothesis to the globally stationary smooth transition autoregression model. We find evidence in favor of the empirical fulfillment of RIRP, particularly when taking into account the possibility of nonlinearities in the real interest rate differential.

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

Volume (Year): 46 (2010)
Issue (Month): 6 (November)
Pages: 22-39

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Handle: RePEc:mes:emfitr:v:46:y:2010:i:6:p:22-39

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024

Related research

Keywords: central and eastern Europe; nonlinearities; real interest rate parity; unit roots;

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Cited by:
  1. Pelin Oge Guney & Erdinc Telatar & Mubariz Hasanov, 2012. "Time Series Behaviour of the Real Interest Rates in Transition Economies," Hacettepe University Department of Economics Working Papers 20125, Hacettepe University, Department of Economics.
  2. Baharumshah, Ahmad Zubaidi & Soon, Siew-Voon & Boršič, Darja, 2013. "Real interest parity in Central and Eastern European countries: Evidence on integration into EU and the US markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 163-180.
  3. Claudiu Tiberiu Albulescu & Dominique Pepin & Aviral Kumar Tiwari, 2014. "A re-examination of real interest parity in CEECs using old and new generations of panel unit root tests," Papers 1403.3627, arXiv.org.
  4. Öge Güney, Pelin & Hasanov, Mübariz, 2014. "Real interest rate parity hypothesis in post-Soviet countries: Evidence from unit root tests," Economic Modelling, Elsevier, vol. 36(C), pages 120-129.

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