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A Re-examination of the Real Interest Parity Condition Using Threshold Cointegration

Arusha Cooray

No 2139, Working Papers from University of Tasmania, Tasmanian School of Business and Economics

Abstract: Threshold cointegration is employed in this study to test the real interest parity condition between the UK and the US. Evidence supports the asymmetric adjustment of real interest rates. The threshold error correction models indicate that negative deviations from long run real interest parity are eliminated faster than positive deviations.

Keywords: real interest parity; threshold cointegration; threshold error correction; asymmetric adjustment; non-linear adjustment (search for similar items in EconPapers)
Pages: 11 pages
Date: 2007-02, Revised 2007-02
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Published by Universtiy of Tasmania Discussion Paper February 2007.

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