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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.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Global Economic Review.

Volume (Year): 39 (2010)
Issue (Month): 4 ()
Pages: 351-364

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Handle: RePEc:taf:glecrv:v:39:y:2010:i:4:p:351-364

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Related research

Keywords: Real interest rate differentials; non-linear; non-stationarity; capital mobility; market integration;

References

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