Real interest rate parity in OECD countries: new evidence from time series and panel cointegration techniques

Abstract

We examine the existence of Real Interest Rate Parity (RIRP) for a number of Organisation for Economic Co-operation and Development (OECD) countries. Using time series techniques, we manage to identify cointegrating relationships. For a subset of countries our findings suggest the existence of a structural break. The panel results are also in favour of the RIRP.

Keywords:

• real interest rate parity
• cointegration
• structural break
• panel cointegration

JEL Classification:

• E43
• C22
• C23

Notes

¹ Some representative papers from this strand of the literature are the ones from Ferreira and Leon-Ledesma (2007), Arghyrou et al. (2009), Maveyraud-Tricoire and Rous (2009) and Su et al. (2012).

² See, among others, Monadjemi (1998) and Chung and Crowder (2004).

³ The estimations were performed using Krolzig's code written in Ox.

⁴ To save space, we do not show the results but they are available upon request.

⁵ The examined countries are Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Korea, Luxemburg, the Netherlands, Portugal, Spain, Sweden, Switzerland and the United Kingdom.