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Are Real Interest Rates Cointegrated? Further evidence based on paneleconometric methods

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  • Christian Dreger
  • Christian Schumacher

Abstract

We examine the validity of real interest parity as a long run condition for the G7 countries. If real interest parity holds, differences of real interest rates are stationary. This is investigated by the means of conventional and panel unit root tests, where heterogeneity and contemporaneous correlation across the panel members is taken into account. Performing ADF- and KPSS-style panel tests on ex post rates, the evidence suggests a mixture of stationary and nonstationary series. However strong linkages between individual real interest rates can be found in the European economies.

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Bibliographic Info

Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 139 (2003)
Issue (Month): I (March)
Pages: 41-53

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Handle: RePEc:ses:arsjes:2003-i-2

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Keywords: Real Interest Parity; Panel Unit Roots; Cointegration;

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References

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Citations

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Cited by:
  1. Christian Dreger, 2008. "Does the Nominal Exchange Rate Regime Affect the Real Interest Parity Condition?," Working Paper / FINESS 1.1c, DIW Berlin, German Institute for Economic Research.
  2. Peter Kugler & Beatrice Weder, 2004. "International Portfolio Holdings and Swiss Franc Asset Returns," Working papers 2004/08, Faculty of Business and Economics - University of Basel.
  3. repec:diw:diwfin:diwfin01013 is not listed on IDEAS
  4. Costantini, Mauro & Lupi, Claudio, 2007. "An analysis of inflation and interest rates. New panel unit root results in the presence of structural breaks," Economics Letters, Elsevier, vol. 95(3), pages 408-414, June.

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