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Does the Real Interest Parity Hypothesis Hold? Evidence for Developed and Emerging Markets

  • Alex Luiz Ferreira


  • Miguel León-Ledesma


Evidence is presented on the Real Interest Parity Hypothesis for a set of emerging and developed countries. This is done by carrying out a set of unit-root tests on the real interest differentials with respect to Germany and the US. Our results support the hypothesis of a rapid reversion towards a zero differeential for developed countries and towards a positive one for emerging markets. An important result is that this adjustment tends to be highly asymmetric and markedly different for developed and emerging countries. Our evidence reveals a high degree of market integratioin for developed countries and highlights the importance of risk premia for emerging markets.

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Paper provided by School of Economics, University of Kent in its series Studies in Economics with number 0301.

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Date of creation: Aug 2003
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Handle: RePEc:ukc:ukcedp:0301
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