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On Real Interest Rate Persistence: The Role of Breaks

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  • 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
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    File URL: http://www.otago.ac.nz/economics/research/otago076637.pdf
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    More about this item

    Keywords

    Real interest rates; persistence of a time series; breaks in persistence;
    All these keywords.

    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

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