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A New Test Of The Real Interest Rate Parity Hypothesis
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Book Synopsis A New Test of the Real Interest Rate Parity Hypothesis by : George Bagdatoglou
Download or read book A New Test of the Real Interest Rate Parity Hypothesis written by George Bagdatoglou and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The real interest rate parity hypothesis is tested using data for the group of seven industrialized countries (G7) over the period 1970-2008. The contribution is two-fold. First, the paper utilizes the bounds approach in order to overcome uncertainty about the order of integration of real interest rates. Second, a test is made for structural breaks in the underlying relationship using a multiple structural breaks test. The results indicate significant parameter instability and suggest that, despite the advances in economic and financial integration, real interest rate parity has not fully recovered from a breakdown in the 1980s.
Book Synopsis A Research Examination of Covered-Uncovered Interest Rate Parity and the Purchase Power Parity (PPP) Hypothesis: Applications in MATLAB, RATS and EVIEWS by : Eleftherios Giovanis
Download or read book A Research Examination of Covered-Uncovered Interest Rate Parity and the Purchase Power Parity (PPP) Hypothesis: Applications in MATLAB, RATS and EVIEWS written by Eleftherios Giovanis and published by GRIN Verlag. This book was released on 2010-02 with total page 121 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2008 in the subject Business economics - Investment and Finance, grade: 95.00%, language: English, abstract: This project examines in the first part the covered and uncovered interest parity between US dollar and Swiss Franc. We present simple summary statistics, unit root tests, deviations from covered interest parity, regression analysis, threshold autoregression and exponential transition autoregression. Then we present the uncovered interest parity and, as in the case of covered interest parity, we apply some tests to examine if it's valid. We apply Johansen cointegration tests between spot and forward rates, but also between forward premia and interest rates differentials and we test if there is a cointegration equation and we estimate the vector error correction model. After this procedure we present the impulse responses. Next we test if there is a threshold cointegration relation between the above variables. Finally in the last section we apply a dynamic OLS (DOLS) estimation with Newey-West HAC standard errors. In the second part the purchasing power parity (PPP) hypothesis is examined with a similar methodology followed, where additionally we present a long span study, unit root tests allowing for structural breaks in data, panel unit root tests as also Markov switching regime autoregressive model is examined in the category of the non linear models
Book Synopsis International Expected Real Interest Rates by : John Merrick
Download or read book International Expected Real Interest Rates written by John Merrick and published by . This book was released on 1986 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Robustness of Real Interest Rate Parity Tests to Alternative Measures of Real Interest Rates by : Onsurang Pipatchaipoom
Download or read book The Robustness of Real Interest Rate Parity Tests to Alternative Measures of Real Interest Rates written by Onsurang Pipatchaipoom and published by . This book was released on 2005 with total page 326 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Testing Real Interest Parity in Emerging Markets by : Manmohan Singh
Download or read book Testing Real Interest Parity in Emerging Markets written by Manmohan Singh and published by International Monetary Fund. This book was released on 2006 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper finds significant deviations between short-term emerging market real interest rates and world real interest rates primarily due to the inflationary expectations of the local investor base. We test for long-run real interest convergence in emerging markets using a time varying panel unit root test proposed by Pesaran to capture the improved macro-economic fundamentals since early 1990s. We also estimate the speed of convergence in the presence of a shock. The paper suggests that real interest rates in the emerging markets show some convergence in the long run but real interest parity does not hold. Our results also find that the speed of adjustment of real rates to a shock is estimated to differ significantly across the emerging markets. Measured by their half-life, some emerging markets in Asia, E.Europe and S.Africa, where real interest rates are generally low, take much longer to adjust than where real interest rates are generally high (Latin America, Turkey). From a policy perspective, encouraging foreign investors to take direct exposure at the short end of the local debt market could lower the real interest rates in some emerging markets.
Book Synopsis Are Real Interest Rates Equal Across Countries? by : Frederic S. Mishkin
Download or read book Are Real Interest Rates Equal Across Countries? written by Frederic S. Mishkin and published by . This book was released on 1982 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: The proposition that real rates are equal across countries is worth studying because it is central to our understanding of open economy macroeconomics and because it is also an important issue to policy makers. If it is true, then domestic monetary authorities have no control over their real rate relative to the world rate, limiting the impact of their stabilization policies. In addition, as Feldstein has pointed out, unless real rates can differ across countries, policies directed at increasing domestic savings cannot increase the rate of capital formation and hence productivity. The equality of real rates is also worth investigating, because it is intimately linked to and provides information on the basic parity conditions featured so prominently in open economy macro models.This paper conducts empirical tests of the equality of real rates and other parity conditions across countries using euro rate data over the1967-II to 1979-II sample period. The empirical evidence strongly rejects the hypothesis of the equality of real euro rates across countries. The joint hypotheses of uncovered interest parity and ex ante relative PPP, or the unbiasedness of forward rate forecasts and ex ante relative PPP, are also strongly rejected. Yet independent tests of uncovered interest parity, the unbiasedness of forward rate forecasts and ex ante relative PPP yield few rejections and high marginal significance levels. The evidence suggests that it is worth studying open economy models which allow: 1) domestic real rates to differ from world rates, 2) time varying risk premiums in the forward market or 3) deviations from ex ante relative purchasing power parity.The evidence also leaves open the possibility for policy makers to exertsome control over their domestic real rate relative to those in the rest of the world. However, the evidence does not rule out that there is a tendency for real rates across countries to equalize over time, and this is an important topic for further research.
Book Synopsis The Real Interest Rate Parity Hypothesis by :
Download or read book The Real Interest Rate Parity Hypothesis written by and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: "How internationally mobile is the world's supply of capital? Does capital flow among industrial countries to equalise the yield to investors? Alternatively, does the saving that originates in a country remain to be invested there? Or does the truth lie somewhere between these two extremes? The answers to these questions are not only important for understanding the international capital market but are critical for analysing a wide range of issues ..." [Feldstein and Horioka (1980), p. 314] The questions stated on the quote above, posed by Feldstein and Horioka (1980), still raise intense debate and resilient disagreement. It is peculiar that the liberalisation of capital and goods markets carried out in the last decades and the increasing speed of capital movement have not sealed the enigma put forward by Feldstein and Horioka (1980) more than twenty years ago. On the contrary, according to Obstfeld and Rogoff (2000, p. 341) this is still "one of the most robust and intractable puzzles in international finance". There are two central questions in this thesis. The first one is at the heart of Feldstein and Horioka (1980) concern: "Is there evidence on the existence of real interest rate differentials in a selected group of emerging and developed economies?" We provide an answer to this question in chapter 2. The second question: "What are the causes that underlie real interest rate differentials?" is the research objective of the next chapters. In brief, we investigate the existence and causes of ex post real interest rate differentials [rid(s) hereafter] in a group of economies. The countries chosen for our tests can be split into two groups. The first one comprises some small open-economies of emerging markets: Argentina, Brazil, Chile, Mexico and Turkey. The second group is composed of the open-economies of developed countries: France, Italy, Spain, the UK and Germany. Finally, we use the US as the reference large economy. The period of the tests broadly corresponds to the interval that spans from the mid 1990s to the beginning of the 2000s, with differences highlighted accordingly in each chapter. Both the period and the choice of the countries will be explained in following chapters, however, we can emphasise that this heterogeneous sample of countries allows inter-group comparisons and the detection of similar patterns between them(...).
Book Synopsis International Parity Conditions by : Razzaque H. Bhatti
Download or read book International Parity Conditions written by Razzaque H. Bhatti and published by Springer. This book was released on 2016-07-27 with total page 389 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book presents an extensive survey of the theory and empirics of international parity conditions which are critical to our understanding of the linkages between world markets and the movement of interest and exchange rates across countries. The book falls into three parts dealing with the theory, methods of econometric testing and existing empirical evidence. Although it is intended to provide a consensus view on the subject, the authors also make some controversial propositions, particularly on the purchasing power parity conditions.
Book Synopsis Long-horizon Uncovered Interest Rate Parity by : Guy Meredith
Download or read book Long-horizon Uncovered Interest Rate Parity written by Guy Meredith and published by . This book was released on 1998 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Uncovered interest parity (UIP) has been almost universally rejected in studies of exchange rate movements, although there is little consensus on why it fails. In contrast to previous studies, which have used relatively short-horizon data, we test UIP using interest rates on longer-maturity bonds for the G-7 countries. These long-horizon regressions yield much more support for UIP -- all the coefficients on interest differentials are of the correct sign, and almost all are closer to the UIP value of unity than to the zero coefficient implied by the random walk hypothesis. We then use a small macroeconomic model to explain the differences between the short- and long-horizon results. Regressions run on data generated by stochastic simulations replicate the important regularities in the actual data, including the sharp differences between short- and long-horizon parameters. In the short run from risk premium shocks in the face of endogenous monetary policy. In the long run, in contrast, exchange rate movements are driven by the "fundamentals," leading to a relationship between interest rates and exchange rates that is more consistent with UIP.
Book Synopsis Testing for Real Interest Rate Parity Using Panel Stationarity Tests with Dependence by : Mariam Camarero
Download or read book Testing for Real Interest Rate Parity Using Panel Stationarity Tests with Dependence written by Mariam Camarero and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we test for real interest parity (RIRP) among the 19 major OECD countries over the period 1978:Q1-2006:Q1 using both short- and long-run definitions of interest rates. Once the independence hypothesis is rejected among these series, we test for RIRP using panel data unit root and stationarity tests based on common factor models that allow for pervasive forms of dependence. Our results indicate that there is no evidence in favor of the weak version of the RIRP since one of the common factors that have been estimated is non-stationary.
Book Synopsis Uncovered Interest Parity by : Mr.Peter Isard
Download or read book Uncovered Interest Parity written by Mr.Peter Isard and published by International Monetary Fund. This book was released on 1991-05 with total page 14 pages. Available in PDF, EPUB and Kindle. Book excerpt: This note provides an overview of the uncovered interest parity assumption. It traces the history of the interest parity concept, summarizes evidence on the empirical validity of uncovered interest parity, and discusses the implications for macroeconomic analysis. The uncovered interest parity assumption has been an important building block in multiperiod and continuous time models of open economies, and although its validity is strongly challenged by the empirical evidence, its retention in macroeconomic models is supported on pragmatic grounds, at least for the time being, by the lack of much empirical support for existing models of the exchange risk premium.
Book Synopsis Real Interest Rate Parity by : Pierre L. Siklos
Download or read book Real Interest Rate Parity written by Pierre L. Siklos and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the restrictions required for real interest rate parity to hold. Employing the multivariate cointegration procedure, allowances are made for exogenous events (such as oil price shocks and currency realignments within the EMS) which may have disturbed any underlying long-run relationship between variables. The results show that restrictions required for real interest rate parity are easily rejected for monthly euro-deposit data for six OECD countries, namely Canada, Belgium, the U.S., France, and Germany over the period 1975-1992. Findings also indicate that care must be taken in doing empirical work in this area because results can be sensitive to a number of important choices that must be made in specifying and interpreting results from cointegration tests.
Book Synopsis Purchasing Power Parity and Uncovered Interest Rate Parity by : Hali J. Edison
Download or read book Purchasing Power Parity and Uncovered Interest Rate Parity written by Hali J. Edison and published by . This book was released on 1992 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis An Alternative Test for the Equality of International Real Interest Rates by : William J. Crowder
Download or read book An Alternative Test for the Equality of International Real Interest Rates written by William J. Crowder and published by . This book was released on 1993 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: There are three conditions which must be met for real interest rates to be equalized internationally. These are exante purchasing power parity (EAPPP), uncovered interest rate parity, (UIP), and the Fisher relation in each country. A violation of any of these three conditions will result in real interest rate divergences across countries. The theoretical time series restrictions, imposed by real rate equality, are derived for each of the relevant variables. These time series restrictions are shown to be inconsistent with the actual behavior of the variables over the modern floating exchange rate period. Specifically, the presence of a unit autoregressive root in any of the variables is enough to invalidate international real rate equality.
Book Synopsis Tests of Alternative Exchange Rate Hypotheses by : Seth Tobin Kaplan
Download or read book Tests of Alternative Exchange Rate Hypotheses written by Seth Tobin Kaplan and published by . This book was released on 1986 with total page 258 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Long-Run Relationship Between Real Exchange Rates and Real Interest Rate Differentials by : Mr.Jun Nagayasu
Download or read book The Long-Run Relationship Between Real Exchange Rates and Real Interest Rate Differentials written by Mr.Jun Nagayasu and published by International Monetary Fund. This book was released on 1999-03-01 with total page 13 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper empirically examines the long-run relationship between real exchange rates and real interest rate differentials over the recent floating exchange rate period, using a panel cointegration method, with data for a set of industrialized countries. The paper finds evidence of statistically significant long-run relationships and plausible point estimates, which contrasts with much existing evidence. The failure of others to establish such relationships may reflect the estimation method they use rather than any inherent deficiency of the fundamentals-based models.
Book Synopsis Covered Interest Parity Deviations: Macrofinancial Determinants by : Mr.Eugenio M Cerutti
Download or read book Covered Interest Parity Deviations: Macrofinancial Determinants written by Mr.Eugenio M Cerutti and published by International Monetary Fund. This book was released on 2019-01-16 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: For about three decades until the Global Financial Crisis (GFC), Covered Interest Parity (CIP) appeared to hold quite closely—even as a broad macroeconomic relationship applying to daily or weekly data. Not only have CIP deviations significantly increased since the GFC, but potential macrofinancial drivers of the variation in CIP deviations have also become significant. The variation in CIP deviations seems to be associated with multiple factors, not only regulatory changes. Most of these do not display a uniform importance across currency pairs and time, and some are associated with possible temporary considerations (such as asynchronous monetary policy cycles).
