The Behavior of Real Interest Rates: New Evidence from a ``Suprasecular" Perspective

Giorgio Canarella, Luis Gil-Alana, Rangan Gupta and Stephen Miller

No 202093, Working Papers from University of Pretoria, Department of Economics

Abstract: We examine the temporal dynamics of the historical series of real interest rates for a sample of six European countries (Italy, France, Germany, Holland (the Netherlands), Spain pre-1730 and post-1800, and the United Kingdom), the United States and Japan stretching back to the 14th century using fractional integration techniques. We estimate the fractional integration parameter d using the Whittle function in the frequency domain as proposed in Dahlhaus (1989) and implemented by Robinson (1994) for the linear case and Cuestas and Gil-Alana (2016) for the non-linear case in terms of Chebyshev time polynomials. We find evidence of short memory, persistence, and anti-persistence. In the linear case, we find evidence of persistence for France and the United Kingdom and evidence of anti-persistence for Spain pre-1730, Germany, and Italy, while for Holland (the Netherlands), Japan, Spain post-1800, and the United States the evidence favors the short memory hypothesis. Non-linear trend stationarity, however, is found for Spain pre-1739, Germany, Holland (the Netherlands), Japan, Spain, the United Kingdom, and the United States. Among these countries, evidence of anti-persistence is detected for Spain pre-1730, Germany, Holland (the Netherlands), Japan, and the United Kingdom, while Spain post-1800 and the United States exhibit short-memory behavior. Thus, the vast majority of the findings, in sharp contrast with most of the extant literature, support the hypothesis that the behavior of real interest rates is non-linear trend stationary driven by a prolonged damped oscillatory dynamics and not by a high degree of persistence.

Keywords: Anti-persistence; long memory; short memory; Chebyshev polynomials; fractional integration; non-linearity (search for similar items in EconPapers)
JEL-codes: C22 C58 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2020-10
New Economics Papers: this item is included in nep-his
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:202093

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