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Further evidence on the Real Interest Rate Parity hypothesis in Central and Eastern European Countries: unit roots and nonlinearities

Juan Cuestas and Barry Harrison

NBS Discussion Papers in Economics from Economics, Nottingham Business School, Nottingham Trent University

Abstract: This paper analyses the empirical fulfilment of the Real Interest Rate Parity (RIRP) theory for a pool of Central and Eastern European Countries. To do so, we apply the recently developed Ng and Perron (2001) unit root tests, that are corrected versions of existing unit root tests and the Kapetanios et al. (2003) unit root test which generalises the alternative hypothesis to the globally stationary smooth transition autoregression model. Our results point to the existence of evidence in favour of the empirical fulfilment of the RIRP, in particular, when taking into account the possibility of nonlinearities in the real interest rate differential.

Keywords: Real Interest Rate parity; Unit Roots; nonlinearities; Central and East Europe. (search for similar items in EconPapers)
JEL-codes: C32 F15 (search for similar items in EconPapers)
Date: 2009-01
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-tra
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http://www.ntu.ac.uk/__data/assets/pdf_file/0014/3 ... arity-hypothesis.pdf First version, 2009 (application/pdf)

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