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Real interest parity in Central and Eastern European countries: Evidence on integration into EU and the US markets

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  • Baharumshah, Ahmad Zubaidi
  • Soon, Siew-Voon
  • Boršič, Darja

Abstract

We investigate the validity of real interest parity (RIP) for the 13 Central and Eastern European countries, over the period 1996–2011. We consider a panel stationarity test that allows for multiple breaks advocated by Carrion-i-Silvestre et al. (2005) and confirmed the strong version of RIP. We found that the events of the last two decades, including the recent global financial crisis affected most of the real interest differential series. Based on the local-persistent model, we found that these countries take less than a year to converge to the RIP value. Financial market integration in these countries is invariant with respect to the reference country—the US and EU.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:intfin:v:25:y:2013:i:c:p:163-180
    DOI: 10.1016/j.intfin.2013.02.001
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    Cited by:

    1. Claudiu Tiberiu Albulescu & Dominique Pépin & Aviral Kumar Tiwari, 2016. "A RE-EXAMINATION OF REAL INTEREST PARITY IN CEECs USING ‘OLD’ AND ‘NEW’ SECOND-GENERATION PANEL UNIT ROOT TESTS," Bulletin of Economic Research, Wiley Blackwell, vol. 68(2), pages 133-150, April.
    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. Soon, Siew-Voon & Baharumshah, Ahmad Zubaidi & Mohamad Shariff, Nurul Sima, 2017. "The persistence in real interest rates: Does it solve the intertemporal consumption behavior puzzle?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 50(C), pages 36-51.
    4. Mustapha Ibn Boamah, 2018. "Real interest parity: Evidence from trade partnerships," Review of Financial Economics, John Wiley & Sons, vol. 36(3), pages 199-205, July.
    5. Holmes, Mark J. & Iregui, Ana María & Otero, Jesús, 2019. "Interest rate convergence across maturities: Evidence from bank data in an emerging market economy," The North American Journal of Economics and Finance, Elsevier, vol. 49(C), pages 57-70.
    6. Ayşegül Çorakcı & Furkan Emirmahmutoglu & Tolga Omay, 2017. "Re-examining the real interest rate parity hypothesis (RIPH) using panel unit root tests with asymmetry and cross-section dependence," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 44(1), pages 91-120, February.
    7. Charbel Bassil & Hassan Hamadi & Patrick Mardini, 2019. "Gold and oil prices: stable or unstable long-run relationship," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(1), pages 57-72, January.

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    More about this item

    Keywords

    Real interest rate parity; Structural breaks; Half-lives;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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