DOES REAL INTEREST RATE PARITY HOLD FOR OECD COUNTRIES? NEW EVIDENCE USING PANEL STATIONARITY TESTS WITH CROSS‐SECTION DEPENDENCE AND STRUCTURAL BREAKS

Mariam Camarero, Josep Lluís Carrion‐i‐Silvestre and Cecilio Tamarit
Authors registered in the RePEc Author Service: Josep Lluís Carrion-i-Silvestre

Scottish Journal of Political Economy, 2010, vol. 57, issue 5, 568-590

Abstract: This paper tests for real interest rate parity (RIRP) among the 17 major Organisation for Economic Cooperation and Development countries over the period 1978:Q1–2006:Q1. The econometric methods applied consist of combining the use of panel data tests that are valid under cross‐section dependence and the presence of multiple structural breaks. This feature is important because the misspecification errors due to not accounting for structural breaks and/or cross‐section dependence can lead to misleading conclusions. Our results support the fulfilment of the weak version of the RIRP for short‐term interest rate differentials once dependence and structural breaks are considered.

Date: 2010
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https://doi.org/10.1111/j.1467-9485.2010.00531.x

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