Does the Real Interest Parity Hypothesis Hold? Evidence for Developed and Emerging Markets

Alex Ferreira and Miguel Leon-Ledesma

Studies in Economics from School of Economics, University of Kent

Abstract: Evidence is presented on the Real Interest Parity Hypothesis for a set of emerging and developed countries. This is done by carrying out a set of unit-root tests on the real interest differentials with respect to Germany and the US. Our results support the hypothesis of a rapid reversion towards a zero differeential for developed countries and towards a positive one for emerging markets. An important result is that this adjustment tends to be highly asymmetric and markedly different for developed and emerging countries. Our evidence reveals a high degree of market integratioin for developed countries and highlights the importance of risk premia for emerging markets.

Keywords: Real Interest Rate Differentials; Market Integration; Unit Roots; Asymmetric Adjustment (search for similar items in EconPapers)
JEL-codes: C22 F21 F32 (search for similar items in EconPapers)
Date: 2003-08
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Citations: View citations in EconPapers (19)

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Related works:
Working Paper: Does the Real Interest Parity Hypothesis Hold? Evidence for Developed and Emerging Markets (2010)
Journal Article: Does the real interest parity hypothesis hold? Evidence for developed and emerging markets (2007)
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