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

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  • Claude Lopez
  • Javier Reyes

Abstract

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.

Suggested Citation

  • Claude Lopez & Javier Reyes, 2009. "Stationary properties of the real interest rate and the per-capita consumption growth rate: empirical evidence for theoretical arguments," Applied Economics, Taylor & Francis Journals, vol. 41(13), pages 1643-1651.
  • Handle: RePEc:taf:applec:v:41:y:2009:i:13:p:1643-1651
    DOI: 10.1080/00036840802243805
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    References listed on IDEAS

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    1. 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.
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    5. Perron, Pierre & Vogelsang, Timothy J, 1992. "Nonstationarity and Level Shifts with an Application to Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 301-320, July.
    6. 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.
    7. Rose, Andrew Kenan, 1988. " Is the Real Interest Rate Stable?," Journal of Finance, American Finance Association, vol. 43(5), pages 1095-1112, December.
    8. 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.
    9. Lopez, Claude, 2009. "GLS-detrending and regime-wise stationarity testing in small samples," Economics Letters, Elsevier, vol. 104(2), pages 99-101, August.
    10. David Harvey & Stephen Leybourne & Paul Newbold, 2003. "How great are the great ratios?," Applied Economics, Taylor & Francis Journals, vol. 35(2), pages 163-177.
    11. 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 320-334, August.
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    Cited by:

    1. Lambelet, Jean-Christian & Mihailov, Alexander, 2005. "The Triple-Parity Law," Economics Discussion Papers 8896, University of Essex, Department of Economics.
    2. repec:eee:intfin:v:50:y:2017:i:c:p:36-51 is not listed on IDEAS
    3. Kim, Jae H. & Ji, Philip Inyeob, 2011. "Mean-reversion in international real interest rates," Economic Modelling, Elsevier, vol. 28(4), pages 1959-1966, July.
    4. Jan Willem van den End, 2011. "Statistical evidence on the mean reversion of interest rates," DNB Working Papers 284, Netherlands Central Bank, Research Department.

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