Examining real interest parity: which component reverts quickest and in which regime?

Kavita Sirichand (), Andrew Vivian and Mark Wohar ()
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Andrew Vivian: School of Business and Economics, Loughborough University

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: This article re-examines real interest parity (RIP), focusing upon which component of real interest parity drives convergence to parity. We find that it is the reversion of inflation rather than nominal interest rates which is the primary source of convergence to RIP. Nominal interest rate differential are found to be persistent during both periods. Furthermore, we additionally find that mean reversion in the inflation differentials is faster during the Gold Standard period.

Keywords: comovement; real interest rate parity; inflation differential; nominal interest (search for similar items in EconPapers)
JEL-codes: G10 G15 G30 (search for similar items in EconPapers)
Date: 2014-07, Revised 2014-07
New Economics Papers: this item is included in nep-cba and nep-mon
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Journal Article: Examining real interest parity: Which component reverts quickest and in which regime? (2015)
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