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Does the real interest parity hypothesis hold? Evidence for developed and emerging markets

  • Ferreira, Alex Luiz
  • Leon-Ledesma, Miguel A.

Evidence is presented on the Real Interest Parity Hypothesis for a set of emerging and developed countries. This is done by carrying out a set of unit-root tests on the real interest differentials with respect to Germany and the US. Our results support the hypothesis of a rapid reversion towards a zero differeential for developed countries and towards a positive one for emerging markets. An important result is that this adjustment tends to be highly asymmetric and markedly different for developed and emerging countries. Our evidence reveals a high degree of market integratioin for developed countries and highlights the importance of risk premia for emerging markets.

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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 26 (2007)
Issue (Month): 3 (April)
Pages: 364-382

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Handle: RePEc:eee:jimfin:v:26:y:2007:i:3:p:364-382
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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