Do real interest rates converge? Evidence from the European Union

Michael Arghyrou, Andros Gregoriou () and Alexandros Kontonikas ()

No E2007/26, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: We test for real interest parity (RIP) in the EU25 area. Our contribution is two-fold: First, we account for the previously overlooked effects of structural breaks on real interest rate differentials. Second, we test for RIP against the EMU average. For the majority of our sample countries we obtain evidence of real interest rate convergence towards the latter. Convergence, however, is a gradual process subject to structural breaks, typically falling close to the launch of the euro. Our findings have important implications relating to the single monetary policy and the progress new EU members have achieved towards joining the euro.

Keywords: real interest rate parity; convergence; structural breaks; EU; EMU (search for similar items in EconPapers)
JEL-codes: C15 C22 F21 F32 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2007-09
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in Journal of International Financial Markets, Institutions & Money , vol. 19, July 2009, 447-460

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Related works:
Journal Article: Do real interest rates converge? Evidence from the European union (2009)
Working Paper: Do real interest rates converge? Evidence from the European Union (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cdf:wpaper:2007/26

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