INTERNATIONAL EVIDENCE ON REAL INTEREST RATE PERSISTENCE

Zeynel Ozdemir (), Cagdas Ekinci () and Korhan Gokmenoglu ()
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Cagdas Ekinci: Middle East Technical University, Department of Computer Engineering, Cankaya 06800, Ankara, Turkey

The Singapore Economic Review (SER), 2015, vol. 60, issue 04, 1-14

Abstract: This paper investigates the persistency in theex-postreal interest rates in the presence of endogenous structural breaks for Australia, Austria, Belgium, Canada, Denmark, France, Germany, Ireland, Italy, the Netherlands, New Zealand, Norway, Switzerland, the UK and the USA using seasonally adjusted quarterly data. The procedure used in this study extends the previous research in the respect of investigating degree of persistency of theex-postreal interest rates series by allowing for possible process shifts at endogenously determined more than two structural breaks dates following the principles suggested by Lumsdaine and Papell (1997). The results from the study show that real interest rates are very persistent when such breaks are not taken into account. However, the findings also indicate low persistency in real interest rates for all countries when such breaks are allowed in the data-generating process. We find that endogenously determined structural breaks substantially reduce the degree of persistency of the real interest rate series, which has important theoretical implications as well.

Keywords: Real interest rate; structural breaks; persistence; grid-bootstrap; half-life; C22; E4 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1142/S0217590815500873

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