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Non-linearities in Real Interest Rate Parity: Evidence from OECD and Asian Developing Economies

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  • Ahmad Zubaidi Baharumshah
  • Venus Khim-Sen Liew
  • Ron Mittelhammer

Abstract

This paper investigates the validity real interest rate parity (RIP) for a sample of 19 OECD and Asian developing economies. The distinction of this paper is that we exploit both linearity and non-linear unit root tests as advocated by Dufrenot et al. (Applied Economics, 38, pp. 203-229, 2006) to validate the parity. The major finding are: (i) the alignments from real interest rate differentials (RIDs) are corrected in a non-linear fashion and that the adjustments is asymmetric in both size and speed; (ii) that RIP holds for the developed and developing countries; and (iii) the empirical results are invariant with respect to the US, Japan or Germany as the centre country.

Suggested Citation

  • Ahmad Zubaidi Baharumshah & Venus Khim-Sen Liew & Ron Mittelhammer, 2010. "Non-linearities in Real Interest Rate Parity: Evidence from OECD and Asian Developing Economies," Global Economic Review, Taylor & Francis Journals, vol. 39(4), pages 351-364.
    • Handle: RePEc:taf:glecrv:v:39:y:2010:i:4:p:351-364
    DOI: 10.1080/1226508X.2010.533842
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