Real interest rate parity in Asian countries: evidence from the quantile unit root test

Yunjie Fu, Haiqi Li and Wei Ma

Applied Economics Letters, 2016, vol. 23, issue 12, 844-848

Abstract: This article studies the real interest rate parity (RIP) for several Asian countries. This is done by examining the stationarity in the real interest rate differentials (rids) with respect to the US using the quantile unit root test. Our results show that rids exhibits unit-root behaviours in the lower quantile levels, and mean reversion in the upper quantile levels. Furthermore, large positive shocks tend to induce strong mean reversion and the adjustment towards the long-run equilibrium level is faster as rids gets larger, with shorter half-lives in the extreme quantile levels.

Date: 2016
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DOI: 10.1080/13504851.2015.1114569

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