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Stationary properties of the real interest rate and the per-capita consumption growth rate: empirical evidence for theoretical arguments

  • Claude Lopez
  • Javier Reyes

Many economic theories connecting the real interest rate and the per-capita consumption growth rate require that both rates evolve together over time. This article investigates whether these rates present similar stationary behaviour for the seven most industrialized countries over the 1957-2005 period. The analysis relies on the unit root tests developed by Elliott et al. (1996) and Lopez (2006) to look for stationary or regime-wise stationary behaviour, respectively. Furthermore, the final break selection uses Bai and Perron's (2003) method. The results show, for all the countries considered, that both rates are either stationary or regime-wise stationary with the same number of breaks and, mostly, with corresponding dates. The results hold whether the rates are calculated annually or quarterly.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 41 (2009)
Issue (Month): 13 ()
Pages: 1643-1651

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Handle: RePEc:taf:applec:v:41:y:2009:i:13:p:1643-1651
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  1. Vogelsang, T.I. & Perron, P., 1991. "Nonstationary and Level Shifts With An Application To Purchasing Power Parity," Papers 359, Princeton, Department of Economics - Econometric Research Program.
  2. Claude Lopez, 2008. "GLS-detrending and Regime-wise Stationarity Testing in Small Samples," University of Cincinnati, Economics Working Papers Series 2008-01, University of Cincinnati, Department of Economics, revised 2008.
  3. Claude Lopez, 2005. "Improved Unit Root Tests with Changes in the Intercept," University of Cincinnati, Economics Working Papers Series 2005-04, University of Cincinnati, Department of Economics, revised 2006.
  4. David Harvey & Stephen Leybourne & Paul Newbold, 2003. "How great are the great ratios?," Applied Economics, Taylor & Francis Journals, vol. 35(2), pages 163-177.
  5. Klaus NEUSSER, 1990. "Testing the Long-Run Implications of the Neoclassical Growth Model," Vienna Economics Papers vie9002, University of Vienna, Department of Economics.
  6. Perron, Pierre & Vogelsang, Timothy J, 1992. "Testing for a Unit Root in a Time Series with a Changing Mean: Corrections and Extensions," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(4), pages 467-70, October.
  7. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
  8. Saikkonen, Pentti & L tkepohl, Helmut, 2002. "Testing For A Unit Root In A Time Series With A Level Shift At Unknown Time," Econometric Theory, Cambridge University Press, vol. 18(02), pages 313-348, April.
  9. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
  10. Clemente, Jesus & Montanes, Antonio & Reyes, Marcelo, 1998. "Testing for a unit root in variables with a double change in the mean," Economics Letters, Elsevier, vol. 59(2), pages 175-182, May.
  11. Rapach, David E & Wohar, Mark E, 2005. "Regime Changes in International Real Interest Rates: Are They a Monetary Phenomenon?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 887-906, October.
  12. Rose, Andrew Kenan, 1988. " Is the Real Interest Rate Stable?," Journal of Finance, American Finance Association, vol. 43(5), pages 1095-1112, December.
  13. Rapach, David E. & Weber, Christian E., 2004. "Are real interest rates really nonstationary? New evidence from tests with good size and power," Journal of Macroeconomics, Elsevier, vol. 26(3), pages 409-430, September.
  14. Caporale, Tony & Grier, Kevin B, 2000. "Political Regime Change and the Real Interest Rate," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 320-34, August.
  15. Claude Lopez, 2009. "Euro-zone Inflation Rates: Stationary or Regime-wise Stationary Processes," Economics Bulletin, AccessEcon, vol. 29(1), pages 238-243.
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