Real Interest Rate Stationarity and Per Capita Consumption Growth Rate

Claude Lopez and Javier Reyes

University of Cincinnati, Economics Working Papers Series from University of Cincinnati, Department of Economics

Abstract: Many economic theories connecting the real interest rate and the per-capita consumption growth rate require that both rates evolve together over time. This paper investigates whether these rates present similar stationary behavior for the seven most industrialized countries over the 1957-2005 period. The analysis relies on the unit root tests developed by Elliott, Rothenberg and Stock (1996) and Lopez (2006) to look for stationary or regime-wise stationary behavior, respectively. Furthermore, the ?nal break selection uses Bai and Perron?s (2003) method. The results show for all the countries considered that both rates are either stationary or regime-wise stationary with a same number of breaks and, mostly, corresponding dates. The results hold whether the rates are calculated annually or quarterly.

Pages: 18 pages
Date: 2005-08, Revised 2007-02
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Related works:
Journal Article: Stationary properties of the real interest rate and the per-capita consumption growth rate: empirical evidence for theoretical arguments (2009)
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