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Non-linearities in Real Interest Rate Parity: Evidence from OECD and Asian Developing Economies

Ahmad Zubaidi Baharumshah (), Venus Liew () and Ron Mittelhammer ()

Global Economic Review, 2010, vol. 39, issue 4, 351-364

Abstract: This paper investigates the validity real interest rate parity (RIP) for a sample of 19 OECD and Asian developing economies. The distinction of this paper is that we exploit both linearity and non-linear unit root tests as advocated by Dufrenot et al. (Applied Economics, 38, pp. 203-229, 2006) to validate the parity. The major finding are: (i) the alignments from real interest rate differentials (RIDs) are corrected in a non-linear fashion and that the adjustments is asymmetric in both size and speed; (ii) that RIP holds for the developed and developing countries; and (iii) the empirical results are invariant with respect to the US, Japan or Germany as the centre country.

Keywords: Real interest rate differentials; non-linear; non-stationarity; capital mobility; market integration (search for similar items in EconPapers)
Date: 2010
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