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The Long Memory Story Of Real Interest Rates. Can It Be Supported?

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Author Info
Ivan Paya () (Universidad de Alicante)
Agustín Duarte (Universidad de Alicante)
Ioannis A. Venetis (Centre of Planning and Economic Research (KEPE))

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Abstract

This papers finds evidence of fractional integration for a number of monthly ex post real interest rate series using the GPH semiparametric estimator on data from fourteen European countries and the US. However, we pose empirical questions on certain time series requirements that emerge from fractional integration and we find that they do not hold pointing to ¿spurious¿ long memory and casting doubts with respect to the theoretical origins of long memory in our sample. Common stochastic trends expressed as the sum of stationary past errors do not seem appropriate as an explanation of real interest rate covariation. From an economic perspective, our results suggest that most European countries show higher speed of real interest rate equalization with Germany rather than the US.

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Publisher Info
Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2005-01.

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Length: 20 pages
Date of creation: Jan 2005
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Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2005-01

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Related research
Keywords: Real interest rate; long memory; fractional integration;

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Tsay, Wen-Jen, 2000. "Long memory story of the real interest rate," Economics Letters, Elsevier, vol. 67(3), pages 325-330, June. [Downloadable!] (restricted)
  2. Martin D.D. Evans & Karen K. Lewis, 1993. "Do Expected Shifts in Inflation Affect Estimates of the Long-Run Fisher Relation?," Working Papers 93-06, New York University, Leonard N. Stern School of Business, Department of Economics.
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  3. Adrian W. Throop, 1994. "International financial market integration and linkages of national interest rates," Economic Review, Federal Reserve Bank of San Francisco, pages 3-18. [Downloadable!]
  4. Duarte, Agustin & Holden, Ken, 2003. "The business cycle in the G-7 economies," International Journal of Forecasting, Elsevier, vol. 19(4), pages 685-700. [Downloadable!] (restricted)
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