A Re-examination of Real Interest Rate Parity
Empirical investigation based on consumer-price-index-based real interest rates is used to conclude that real interest rate parity is not supported. In this paper, the authors employ three panel-based unit-root tests, provided by Andrew Levin and Chien-Fu Lin (1992), Kyung So Im, Hashem M. Pesaran, and Yongcheol Shin (1995), and G. S. Maddala and Shaowen Wu (1996), to examine the stationarity of real interest differentials. Using monthly observations on Euro-market rates, they support the mean-reverting property of real interest differentials and, hence, the real interest rate parity. This finding is consistent with the observation that international integration of financial markets has increased dramatically since 1979.
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Volume (Year): 31 (1998)
Issue (Month): 4 (November)
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