Real Convergence and Regime-Switching Among EU Accession Countries

Mark Holmes () and Ping Wang

South-Eastern Europe Journal of Economics, 2008, vol. 6, issue 1, 9-27

Abstract: Real convergence among the ten EU 2004 accession economies is investigated with respect to long-run real interest parity. We employ a novel approach where unit-root tests for real interest differentials are embedded within a Markov regime-switching framework. Whereas standard univariate unit-root tests provide mixed support for parity, we find parity is present in all cases where differentials either switch between regimes of stationary and non-stationarity behavior, or between alternative regimes of stationarity characterized by differing degrees of persistence. Further insights are obtained from the inferred probabilities of being in each regime, and the regime-switching nature of the differential variances.

Keywords: Real Interest Parity; Stationarity; Markov Regime-Switching (search for similar items in EconPapers)
JEL-codes: C33 E43 F30 G15 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:seb:journl:v:6:y:2008:i:1:p:9-27

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