Real Interest Rate Parity: Long-Run and Short-Run Analysis Using Wavelets

Keshab Shrestha and Kok Tan ()

Review of Quantitative Finance and Accounting, 2005, vol. 25, issue 2, 139-157

Abstract: In this article, long-run and short-run relationships among real interest rates in G-7 countries are empirically analyzed. The evidence suggests the existence of long-run relationships among these real interest rates. However, the long-run relationship is not an equality relationship. Short-run relationships are estimated using dynamic simultaneous equation models. They reveal that the real interest rates of non-U.S. G-7 countries react and adjust to long-run disequilibrium conditions. A more detailed analysis based on wavelet transform indicates the existence of both short-run and long-run relationships; however, strict interest rate parity does not seem to hold true. Copyright Springer Science + Business Media, Inc. 2005

Keywords: real interest rate parity; short-run; long-run; wavelet (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1007/s11156-005-4246-8

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