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On real interest rate persistence: the role of breaks

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  • Alfred Haug

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

Abstract

The role of structural breaks in long spans of ex-post real interest rates for ten industrialized countries is studied. First, the persistence of the real interest is assessed with newly proposed low-frequency tests of M¨uller and Watson (2008). Second, the test of Leybourne et al. (2007) for a change in persistence of a time-series is applied to the real interest rate. The results show that real interest rates over the full sample period do not fit a covariance-stationary or unit-root model, nor a fractionally-integrated, near-unit-root or local-level model. The persistence of real rates changes and there are periods when the real rate is covariance stationary and other periods when it follows a unit root process instead. Also, the breaks reflect structural changes in the inflation rate, which are likely due to changes in monetary policy regimes.

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Bibliographic Info

Paper provided by Department of Applied Econometrics, Warsaw School of Economics in its series Working Papers with number 65.

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Length: 17
Date of creation: 06 Nov 2012
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Handle: RePEc:wse:wpaper:65

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Keywords: Real interest rates; persistence of a time series; breaks in persistence;

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  1. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9552, Universite de Montreal, Departement de sciences economiques.
  2. Haug, Alfred A, 2002. " Temporal Aggregation and the Power of Cointegration Tests: A Monte Carlo Study," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(4), pages 399-412, September.
  3. Carrion-i-Silvestre, Josep Lluís & Kim, Dukpa & Perron, Pierre, 2009. "Gls-Based Unit Root Tests With Multiple Structural Breaks Under Both The Null And The Alternative Hypotheses," Econometric Theory, Cambridge University Press, vol. 25(06), pages 1754-1792, December.
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