Real interest rate parity in Asian countries: evidence from the quantile unit root test

ABSTRACT

This article studies the real interest rate parity (RIP) for several Asian countries. This is done by examining the stationarity in the real interest rate differentials (rids) with respect to the US using the quantile unit root test. Our results show that rids exhibits unit-root behaviours in the lower quantile levels, and mean reversion in the upper quantile levels. Furthermore, large positive shocks tend to induce strong mean reversion and the adjustment towards the long-run equilibrium level is faster as rids gets larger, with shorter half-lives in the extreme quantile levels.

KEYWORDS:

• Real interest rate parity
• quantile unit root test
• asymmetric adjustment
• half-lives

JEL CLASSIFICATION:

• C32
• F36

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Lee and Tsong (2012) found more favourable evidences for RIP by using the small sample distribution of the unit root test.

² For Philippines, we use 6-month treasury bill rate from International Financial Statistics.

³ In order to construct the rids series of Philippines, we compute the real interest rate of the US and Philippines using the 6-month treasury bill rates of the US and Philippines, .

Additional information

Funding

The authors acknowledge the financial support provided by the National Natural Science Foundation of China (NSFC) [grant number 71301048], the Natural Science Foundation of Hunan province in China [grant number 14JJ3053] and the training program for young scholars in Hunan University.