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Real Interest Parity: A Note on Asian Countries Using Panel Stationarity Tests

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  • Mark J. Holmes

    ()
    (Department of Economics, Waikato University, New Zealand)

  • Jesús Otero

    ()
    (Facultad de Economía, Universidad del Rosario, Colombia)

  • Theodore Panagiotidis

    ()
    (Department of Economics, University of Macedonia, Greece; The Rimini Centre for Economic Analysis (RCEA), Italy)

Abstract

Existing panel data studies of real interest parity are either unable to identify which panel members are characterised by stationary real interest differentials, or are subject to size distortion resulting from the presence of structural breaks and cross-sectional dependencies. Using a panel stationarity testing procedure recently advocated by Hadri and Rao (2008) that allows for structural breaks and cross-sectional dependency, we are unable to reject the stationarity of Asian real interest rate differentials.

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Bibliographic Info

Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 23_11.

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Date of creation: May 2011
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Handle: RePEc:rim:rimwps:23_11

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Keywords: Heterogeneous dynamic panels; real interest parity; mean reversion; panel; stationarity test;

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References

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  1. Baharumshah, Ahmad Zubaidi & Haw, Chan Tze & Fountas, Stilianos, 2005. "A panel study on real interest rate parity in East Asian countries: Pre- and post-liberalization era," Global Finance Journal, Elsevier, vol. 16(1), pages 69-85, August.
  2. 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.
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  7. Mariam Camarero & Josep Lluís Carrion-i-Silvestre & Cecilio Tamarit, 2010. "Does Real Interest Rate Parity Hold For Oecd Countries? New Evidence Using Panel Stationarity Tests With Cross-Section Dependence And Structural Breaks," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(5), pages 568-590, November.
  8. Ahmad Zubaidi Baharumshah & Venus Khim-Sen Liew & Nor Aishah Hamzah, 2008. "Real interest rate parity in the ASEAN-5 countries: a nonlinear perspective," Applied Economics Letters, Taylor & Francis Journals, vol. 15(12), pages 955-958.
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  15. Yoosoon Chang, 2000. "Bootstrap Unit Root Tests in Panels with Cross-Sectional Dependency," Econometric Society World Congress 2000 Contributed Papers 1585, Econometric Society.
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  19. Dutta, M., 2000. "The euro revolution and the European Union: monetary and economic cooperation in the Asia-Pacific region," Journal of Asian Economics, Elsevier, vol. 11(1), pages 65-88.
  20. Jyh-Lin Wu & Show-Lin Chen, 1998. "A Re-examination of Real Interest Rate Parity," Canadian Journal of Economics, Canadian Economics Association, vol. 31(4), pages 837-851, November.
  21. Hall, Alastair R, 1994. "Testing for a Unit Root in Time Series with Pretest Data-Based Model Selection," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 461-70, October.
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Cited by:
  1. Baharumshah, Ahmad Zubaidi & Soon, Siew-Voon & Hamzah, Nor Aishah, 2013. "Parity reversion in real interest rate in the Asian countries: Further evidence based on local-persistent model," Economic Modelling, Elsevier, vol. 35(C), pages 634-642.
  2. Claudiu Tiberiu Albulescu & Dominique Pepin & Aviral Kumar Tiwari, 2014. "A re-examination of real interest parity in CEECs using old and new generations of panel unit root tests," Papers 1403.3627, arXiv.org.
  3. Baharumshah, Ahmad Zubaidi & Soon, Siew-Voon & Boršič, Darja, 2013. "Real interest parity in Central and Eastern European countries: Evidence on integration into EU and the US markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 163-180.
  4. Chan, Tze-Haw & Baharumshah, Ahmad Zubaidi, 2012. "Financial Integration between China and Asia Pacific Trading Partners: Parities Evidence from the First- and Second-generation Panel Tests," MPRA Paper 37801, University Library of Munich, Germany.

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