A New Test of the Real Interest Rate Parity Hypothesis: Bounds Approach and Structural Breaks
Year: 2011
Type: article
Abstract: 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.
Authors: George Bagdatoglou, Alexandros Kontonikas
Institution: University of Glasgow
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1550793245