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A New Test of the Real Interest Rate Parity Hypothesis: Bounds Approach and Structural Breaks Author info | Abstract | Publisher info | Download info | Related research | Statistics George Bagdatoglou
Alexandros Kontonikas
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We test the real interest rate parity hypothesis using data for the G7 countries over the period 1970-2008. Our contribution is two-fold. First, we utilize the ARDL bounds approach of Pesaran et al. (2001) which allows us to overcome uncertainty about the order of integration of real interest rates. Second, we test for structural breaks in the underlying relationship using the multiple structural breaks test of Bai and Perron (1998, 2003). Our results indicate significant parameter instability and suggest that, despite the advances in economic and financial integration, real interest rate parity has not fully recovered from a breakdown in the 1980s.
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Paper provided by Department of Economics, University of Glasgow in its series Working Papers with number
2009_17.
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Date of creation: May 2009Date of revision:
Handle: RePEc:gla:glaewp:2009_17Contact details of provider: Postal: Adam Smith Building, University of Glasgow, Glasgow G12 8RT Phone: 0141 330 4618 Fax: 0141 330 4940 Web page: http://www.gla.ac.uk/departments/economics/ More information through EDIRC
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Keywords: real interest rates parity ; bounds test ; structural breaks ; Other versions of this item:
Find related papers by JEL classification: F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
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