A revisit on real interest rate parity hypothesis – simulation evidence from efficient unit root tests

Cheng-Feng Lee and Ching-Chuan Tsong

Applied Economics, 2012, vol. 44, issue 24, 3089-3099

Abstract: A set of unit root tests are applied to test the existence of long-run real interest rate parity among the G-10 countries over the period 1971M1 to 2007M2. Rather than trusting the asymptotic distributions, this article uses simulation techniques to establish the small sample distributions of these tests, conditional on the stationary and nonstationary processes. The empirical results indicate that the tests have stable finite-sample sizes and higher size-adjusted powers such that the two estimated processes can be distinguished from each other. Thus, for six of the nine countries, their series are more likely to come from the estimated Autoregressive (AR) stationary process than from the nonstationary process. Noticeably, the testing results are rather different from those using the asymptotic distributions, in which only three countries support the real interest rate parity.

Date: 2012
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2011.570717 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:44:y:2012:i:24:p:3089-3099

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2011.570717

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().