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Real Convergence and Regime-Switching Among EU Accession Countries

Author

Listed:
  • Mark J. Holmes

    (University of Waikato)

  • Ping Wang

    (University of Birmingham)

Abstract

Real convergence among the ten EU 2004 accession economies is investigated with respect to long-run real interest parity. We employ a novel approach where unit-root tests for real interest differentials are embedded within a Markov regime-switching framework. Whereas standard univariate unit-root tests provide mixed support for parity, we find parity is present in all cases where differentials either switch between regimes of stationary and non-stationarity behavior, or between alternative regimes of stationarity characterized by differing degrees of persistence. Further insights are obtained from the inferred probabilities of being in each regime, and the regime-switching nature of the differential variances.

Suggested Citation

  • Mark J. Holmes & Ping Wang, 2008. "Real Convergence and Regime-Switching Among EU Accession Countries," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 6(1), pages 9-27.
    • Handle: RePEc:seb:journl:v:6:y:2008:i:1:p:9-27
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    Cited by:

    1. Su, Chi-Wei & Chang, Hsu-Ling & Liu, Lin, 2012. "Real interest rate parity with Flexible Fourier stationary test for Central and Eastern European countries," Economic Modelling, Elsevier, vol. 29(6), pages 2719-2723.
    2. 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.
    3. 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.

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    More about this item

    Keywords

    Real Interest Parity; Stationarity; Markov Regime-Switching;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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