The real interest rate differential : international evidence based on nonlinear unit root tests

Venus, Khim-Sen Liew and Ahmad Zubaidi, Baharumshah and Chan, Tze Hawc (2008) The real interest rate differential : international evidence based on nonlinear unit root tests. Working Paper. Universiti Malaysia Sabah (UMS).

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Abstract

This paper aims at testing international parity conditions by using nonlinear unit root tests advocated by Kapetanios et al. (2003, KSS). Results from the KSS tests based on 17 countries (G7 and 10 Asian countries) overwhelmingly show that the adjustment of real interest rates towards the RIP follows a nonlinear process except for the Malaysian relationships with both the US and Japan. Overall, the empirical results are in favor of RIP using the US and Japan as the center countries but only if nonlinearities are accounted for in the data generating process. Our findings confirm that interest rate differentials, like the real exchange rates reported in recent literature, display a nonlinear mean reversion process.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: real interest parity, nonlinearities, unit root tests, unimas, university, universiti, Borneo, Malaysia, Sarawak, Kuching, Samarahan, ipta, education, research, Universiti Malaysia Sarawak.
Subjects: H Social Sciences > HG Finance
Divisions: Academic Faculties, Institutes and Centres > Faculty of Economics and Business
Depositing User: Gani
Date Deposited: 06 May 2020 02:30
Last Modified: 06 May 2020 02:30
URI: http://ir.unimas.my/id/eprint/29594

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