Policy-Induced Mean Reversion in the Real Interest Rate?
Zisimos Koustas () and
Jean-Francois Lamarche ()
No 601, Working Papers from Brock University, Department of Economics
This paper utilizes tests for a unit root that have power against nonlinear alternatives to provide empirical evidence on the time series properties of the ex-post real interest rate in the G7 countries. We find that the unit root hypothesis can be rejected in the presence of a nonlinear alternative motivated by theoretical literature on optimal monetary policy rules. This represents a reversal of the results obtained using standard linear unit root and cointegration tests. Tests for linearity reject this hypothesis for Canada, France, Italy and Japan for which we estimate nonlinear models capturing the dynamics of the interest rate.
Keywords: Fisher Effect; Unit Roots; Self-Exciting Threshold Autoregression (search for similar items in EconPapers)
JEL-codes: E40 E50 C32 (search for similar items in EconPapers)
Pages: 24 pages
New Economics Papers: this item is included in nep-mac and nep-mon
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https://brocku.ca/repec/pdf/0601.pdf First version, July 2005 (application/pdf)
Working Paper: Policy-Induced Mean Reversion in the Real Interest Rate? (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:brk:wpaper:0601
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