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Examining The Underlying Parity Conditions Sufficient For Real Interest Parity For Asian Countries

Author

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  • SALAH A. NUSAIR

    (Department of Economics and Finance, Gulf University for Science and Technology, P.O. Box 7207 Hawally, 32093, Kuwait)

Abstract

This paper examines the underlying parity conditions upon which real interest parity (RIP) is predicted for some Asian countries relative to the U.S. and Japan over a period (1978–2009) containing significant changes using the multivariate cointegration procedure of Johansenet al.(2000) that allows for up to two pre-determined breaks. Each parity condition is examined to determine which is responsible for the rejection of RIP. The results suggest that the Fisher hypothesis is the least likely to violate RIP, whereas uncovered interest parity (UIP) appears to be most commonly violated. Stability tests suggest that the RIP relationship has been stable in most cases and that the impact of the Asian crisis and the Plaza Accord appears to be transitory, and that the RIP relationships have strengthened in the aftermath of the 1997–1998 Asian crisis.

Suggested Citation

  • Salah A. Nusair, 2013. "Examining The Underlying Parity Conditions Sufficient For Real Interest Parity For Asian Countries," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 58(01), pages 1-26.
    • Handle: RePEc:wsi:serxxx:v:58:y:2013:i:01:n:s0217590813500021
    DOI: 10.1142/S0217590813500021
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    References listed on IDEAS

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    Cited by:

    1. Khalid Kisswani & Salah Nusair, 2014. "Nonlinear convergence in Asian interest and inflation rates: evidence from Asian countries," Economic Change and Restructuring, Springer, vol. 47(3), pages 155-186, August.

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    More about this item

    Keywords

    RIP; cointegration tests; structural breaks; F15; F33; F36; F41;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • 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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