Mean-reversion in international real interest rates

Jae Kim and Philip Inyeob Ji

Economic Modelling, 2011, vol. 28, issue 4, 1959-1966

Abstract: This paper examines the mean-reversion property of real interest rates. Many past studies have reported puzzling outcomes of the mean-aversion of real interest rates for a number of countries. In the article, we employ panel unit root tests and carry out half-life estimation based on the bias-corrected bootstrap. These findings of the paper provide strong evidence that, in both major Western and East Asian capital markets (including several emerging ones), real interest rates are mean-reverting. In addition, we find evidence that the degree of mean-reversion of the real interest rates is positively correlated with that of output growth, which is consistent with the implications of standard intertemporal behavior.

Keywords: Bootstrap; Cross-sectional; dependence; Half-life; Highest; density; region; Panel; unit; root; tests (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (4)

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