REAL INTEREST RATE PARITY FOR CENTRAL AND EASTERN EUROPEAN COUNTRIES: A NEW UNIT ROOT TEST WITH TWO STRUCTURAL BREAKS

• Authors: Su Chi-Wei , Xia Jiang , Hsu-Ling Chang
• Languages of publication: EN

Abstracts

EN

This study applies Narayan and Popp’s (2010) unit-root test with two endogenous breaks, which has been proven to be more powerful than the other unit root tests with two breaks (Narayan and Popp, 2013) to assess the non-stationary properties of the real interest rate parity (RIRP) for thirteen Central and Eastern European (CEE) countries. We examine the validity of RIRP from the unit root with two breaks of view and provide robust evidence which clearly indicates that RIRP holds true for six countries. Our findings point out their real interest rate convergence is mean reversion towards RIRP equilibrium values with two structural breaks. Our results have important policy implications for these CEE countries under study.

Keywords

EN

UNIT ROOT TEST; ENDOGENOUS BREAKS; REAL INTEREST; RATE PARITY; CEE COUNTRIES

• Publisher: Institute of Slovak and World Economics and Institute for Forecasting, Slovak Academy of Sciences
• Journal: Ekonomický časopis (Journal of Economics)
• Year: 2014
• Volume: 62
• Issue: 1
• Pages: 3 – 18

Contributors

author

Su Chi-Wei

• Ocean University of China, School of Economics, Department of Finance, 238, Songling Rd., Qingdao, Shandong, China

author

Xia Jiang

author

Hsu-Ling Chang