IDEAS home Printed from https://ideas.repec.org/p/otg/wpaper/1303.html
   My bibliography  Save this paper

On Real Interest Rate Persistence: The Role of Breaks

Author

Listed:
  • Alfred A. Haug

    () (Department of Economics, University of Otago, New Zealand)

Abstract

The role of structural breaks in long spans of ex-post real interest rates for ten industrialized countries is studied. First, the persistence of the real interest is assessed with newly proposed low-frequency tests of Muller and Watson (2008). Second, the test of Leybourne et al. (2007) for a change in persistence of a time-series is applied to the real interest rate. The results show that real interest rates over the full sample period do not fit a covariance-stationary or unit-root model, nor a fractionally-integrated, near-unit-root or local-level model. Instead, the persistence of real rates changes over time and there are periods when the real rate is covariance stationary and other periods when it follows a unit root process.

Suggested Citation

  • Alfred A. Haug, 2013. "On Real Interest Rate Persistence: The Role of Breaks," Working Papers 1303, University of Otago, Department of Economics, revised Jan 2013.
  • Handle: RePEc:otg:wpaper:1303
    as

    Download full text from publisher

    File URL: http://www.otago.ac.nz/economics/research/otago076637.pdf
    File Function: First version, 2013
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Perron, Pierre & Yabu, Tomoyoshi, 2009. "Testing for Shifts in Trend With an Integrated or Stationary Noise Component," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(3), pages 369-396.
    2. Carrion-i-Silvestre, Josep Lluís & Kim, Dukpa & Perron, Pierre, 2009. "Gls-Based Unit Root Tests With Multiple Structural Breaks Under Both The Null And The Alternative Hypotheses," Econometric Theory, Cambridge University Press, vol. 25(06), pages 1754-1792, December.
    3. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    4. Peter C.B. Phillips, 1998. "Econometric Analysis of Fisher's Equation," Cowles Foundation Discussion Papers 1180, Cowles Foundation for Research in Economics, Yale University.
    5. Christopher J. Neely & David E. Rapach, 2008. "Real interest rate persistence: evidence and implications," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 609-642.
    6. Tsay, Wen-Jen, 2000. "Long memory story of the real interest rate," Economics Letters, Elsevier, vol. 67(3), pages 325-330, June.
    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. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    9. Christopher A. Sims & Tao Zha, 2006. "Were There Regime Switches in U.S. Monetary Policy?," American Economic Review, American Economic Association, vol. 96(1), pages 54-81, March.
    10. Kris James Mitchener & Marc D. Weidenmier, 2010. "Searching for Irving Fisher," NBER Working Papers 15670, National Bureau of Economic Research, Inc.
    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.
    12. 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.
    13. Ulrich K. Müller & Mark W. Watson, 2008. "Testing Models of Low-Frequency Variability," Econometrica, Econometric Society, vol. 76(5), pages 979-1016, September.
    14. 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.
    15. 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.
    16. Leybourne, Stephen J. & C. Mills, Terence & Newbold, Paul, 1998. "Spurious rejections by Dickey-Fuller tests in the presence of a break under the null," Journal of Econometrics, Elsevier, vol. 87(1), pages 191-203, August.
    17. Haug, Alfred A, 2002. " Temporal Aggregation and the Power of Cointegration Tests: A Monte Carlo Study," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(4), pages 399-412, September.
    18. Garcia, Rene & Perron, Pierre, 1996. "An Analysis of the Real Interest Rate under Regime Shifts," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 111-125, February.
    19. Haug Alfred A & Beyer Andreas & Dewald William, 2011. "Structural Breaks and the Fisher Effect," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-31, May.
    20. 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.
    21. Leybourne Stephen & Kim Tae-Hwan & Taylor A.M. Robert, 2007. "Detecting Multiple Changes in Persistence," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 11(3), pages 1-34, September.
    22. Karanasos, M. & Sekioua, S.H. & Zeng, N., 2006. "On the order of integration of monthly US ex-ante and ex-post real interest rates: New evidence from over a century of data," Economics Letters, Elsevier, vol. 90(2), pages 163-169, February.
    23. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2005. "The Sensitivity of Long-Term Interest Rates to Economic News: Evidence and Implications for Macroeconomic Models," American Economic Review, American Economic Association, vol. 95(1), pages 425-436, March.
    24. 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.
    25. Lai, Kon S., 2008. "The puzzling unit root in the real interest rate and its inconsistency with intertemporal consumption behavior," Journal of International Money and Finance, Elsevier, vol. 27(1), pages 140-155, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:eee:jpolmo:v:39:y:2017:i:5:p:775-789 is not listed on IDEAS
    2. Arnold, Stephan & Auer, Benjamin R., 2015. "What do scientists know about inflation hedging?," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 187-214.
    3. Iorember, Paul & Usar, Terzungwe & Ibrahim, Kabiru, 2018. "ANALYSING Inflation in Nigeria: A Fractionally Integrated ARFIMA-GARCH Modelling Approach," MPRA Paper 85655, University Library of Munich, Germany.

    More about this item

    Keywords

    Real interest rates; persistence of a time series; breaks in persistence;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:otg:wpaper:1303. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Janet Bryant). General contact details of provider: http://edirc.repec.org/data/etotanz.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.