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Time Series Behaviour of the Real Interest Rates in Transition Economies

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Author Info

  • Pelin Oge Guney

    (Hacettepe University, Department of Economics)

  • Erdinc Telatar

    (Hacettepe University, Department of Economics)

  • Mubariz Hasanov

    (Hacettepe University, Department of Economics)

Abstract

Stationarity properties of real interest rates are examined for 21 transition economies. Owing to transaction costs and other frictions, it is quite plausible that we deal with potential non-linearities in the real interest rate. Therefore we examine stationarity of real interest rate allowing for non-linearities and asymmetric adjustment with smooth structural change in the data generating process. Our findings suggest that taking account of non-linearities in the data generating process results in rejection of the unit root null hypothesis for some countries which seem to be non-stationary according to conventional unit root tests. This finding points to the importance of allowing for both structural breaks and asymmetric adjustment in real interest rate series of transition countries.

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File URL: http://www.iktisat.hacettepe.edu.tr/WP/WP-2012-5.pdf
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Bibliographic Info

Paper provided by Hacettepe University, Department of Economics in its series Hacettepe University Department of Economics Working Papers with number 20125.

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Length: 33 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:hac:hacwop:20125

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Postal: Hacettepe University, Faculty of Economics and Administrative Sciences, Department of Economics, Ankara, Turkey
Phone: 0090 312 297 8652
Fax: (312) 299 2003
Email:
Web page: http://www.iktisat.hacettepe.edu.tr
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Keywords: Real Interest Rate; Transition Economies; Structural Break; Nonlinearity; Unit Root;

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References

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  1. Foster, Neil & Stehrer, Robert, 2007. "Modeling transformation in CEECs using smooth transitions," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 57-86, March.
  2. Juan Carlos Cuestas & Barry Harrison, 2010. "Further Evidence on the Real Interest Rate Parity Hypothesis in Central and East European Countries: Unit Roots and Nonlinearities," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 46(6), pages 22-39, November.
  3. Dolado, Juan J. & María-Dolores, Ramón & Ruge-Murcia, Francisco J., 2002. "Non-Linear Monetary Policy Rules: Some New Evidence for the US," CEPR Discussion Papers 3405, C.E.P.R. Discussion Papers.
  4. Frederic S. Mishkin & John Simon, 1994. "An Empirical Examination of the Fisher Effect in Australia," RBA Research Discussion Papers rdp9410, Reserve Bank of Australia.
  5. Zisimos Koustas & Jean-Francois Lamarche, 2010. "Evidence of nonlinear mean reversion in the real interest rate," Applied Economics, Taylor & Francis Journals, vol. 42(2), pages 237-248.
  6. Dimitris K. Christopoulos & Miguel A. Leãn-Ledesma, 2007. "A Long-Run Non-Linear Approach to the Fisher Effect," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 543-559, 03.
  7. Juan Carlos Cuestas & Barry Harrison, 2009. "Further evidence on the Real Interest Rate Parity hypothesis in Central and Eastern European Countries: unit roots and nonlinearities," Working Papers 2009/1, Nottingham Trent University, Nottingham Business School, Economics Division.
  8. Robert Sollis, 2004. "Asymmetric adjustment and smooth transitions: a combination of some unit root tests," Journal of Time Series Analysis, Wiley Blackwell, vol. 25(3), pages 409-417, 05.
  9. Halpern, László & Wyplosz, Charles, 1995. "Equilibrium Real Exchange Rates in Transition," CEPR Discussion Papers 1145, C.E.P.R. Discussion Papers.
  10. Million, Nicolas, 2004. "Central Bank's interventions and the Fisher hypothesis: a threshold cointegration investigation," Economic Modelling, Elsevier, vol. 21(6), pages 1051-1064, December.
  11. Caporale, Tony & Grier, Kevin B, 2000. "Political Regime Change and the Real Interest Rate," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 320-34, August.
  12. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February.
  13. Hasanov, Mübariz & Omay, Tolga, 2008. "Monetary policy rules in practice: Re-examining the case of Turkey," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(16), pages 4309-4318.
  14. Robert Mundell, 1963. "Inflation and Real Interest," Journal of Political Economy, University of Chicago Press, vol. 71, pages 280.
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