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Time Series Behaviour of the Real Interest Rates in Transition Economies

  • Pelin Oge Guney

    (Hacettepe University, Department of Economics)

  • Erdinc Telatar

    (Hacettepe University, Department of Economics)

  • Mubariz Hasanov

    (Hacettepe University, Department of Economics)

Stationarity properties of real interest rates are examined for 21 transition economies. Owing to transaction costs and other frictions, it is quite plausible that we deal with potential non-linearities in the real interest rate. Therefore we examine stationarity of real interest rate allowing for non-linearities and asymmetric adjustment with smooth structural change in the data generating process. Our findings suggest that taking account of non-linearities in the data generating process results in rejection of the unit root null hypothesis for some countries which seem to be non-stationary according to conventional unit root tests. This finding points to the importance of allowing for both structural breaks and asymmetric adjustment in real interest rate series of transition countries.

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Paper provided by Hacettepe University, Department of Economics in its series Hacettepe University Department of Economics Working Papers with number 20125.

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Length: 33 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:hac:hacwop:20125
Contact details of provider: Postal: Hacettepe University, Faculty of Economics and Administrative Sciences, Department of Economics, Ankara, Turkey
Phone: 0090 312 297 8652
Fax: (312) 299 2003
Web page:

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  1. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February.
  2. Mishkin, Frederic S & Simon, John, 1995. "An Empirical Examination of the Fisher Effect in Australia," The Economic Record, The Economic Society of Australia, vol. 71(214), pages 217-29, September.
  3. Hasanov, Mübariz & Omay, Tolga, 2008. "Monetary policy rules in practice: Re-examining the case of Turkey," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(16), pages 4309-4318.
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  5. Halpern, László & Wyplosz, Charles, 1995. "Equilibrium Real Exchange Rates in Transition," CEPR Discussion Papers 1145, C.E.P.R. Discussion Papers.
  6. Robert Sollis, 2004. "Asymmetric adjustment and smooth transitions: a combination of some unit root tests," Journal of Time Series Analysis, Wiley Blackwell, vol. 25(3), pages 409-417, 05.
  7. Robert Mundell, 1963. "Inflation and Real Interest," Journal of Political Economy, University of Chicago Press, vol. 71, pages 280.
  8. Zisimos Koustas & Jean-Francois Lamarche, 2010. "Evidence of nonlinear mean reversion in the real interest rate," Applied Economics, Taylor & Francis Journals, vol. 42(2), pages 237-248.
  9. 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.
  10. Million, Nicolas, 2004. "Central Bank's interventions and the Fisher hypothesis: a threshold cointegration investigation," Economic Modelling, Elsevier, vol. 21(6), pages 1051-1064, December.
  11. Juan Carlos Cuestas & Barry Harrison, 2009. "Further evidence on the Real Interest Rate Parity hypothesis in Central and Eastern European Countries: unit roots and nonlinearities," Working Papers 2009/1, Nottingham Trent University, Nottingham Business School, Economics Division.
  12. Juan Carlos Cuestas & Barry Harrison, 2010. "Further Evidence on the Real Interest Rate Parity Hypothesis in Central and East European Countries: Unit Roots and Nonlinearities," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 46(6), pages 22-39, November.
  13. Dimitris K. Christopoulos & Miguel A. Leãn-Ledesma, 2007. "A Long-Run Non-Linear Approach to the Fisher Effect," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 543-559, 03.
  14. Foster, Neil & Stehrer, Robert, 2007. "Modeling transformation in CEECs using smooth transitions," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 57-86, March.
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