TESTING FOR REAL INTEREST RATE PARITY USING PANEL STATIONARITY TESTS WITH DEPENDENCE: A NOTE*

Mariam Camarero · Josep Lluís Carrion‐i‐Silvestre · Cecilio R. Tamarit

24 citations0/0 files storedManchester School

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Abstract

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.

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References

2003Testing for unit roots in heterogeneous panels 2002Unit root tests in panel data: asymptotic and finite-sample properties 2007A simple panel unit root test in the presence of cross‐section dependence 1999A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test 2002Determining the Number of Factors in Approximate Factor Models 2001LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power 2000Testing for stationarity in heterogeneous panel data 1988Testing for Common Trends

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2009Financial integration of East Asian economies: evidence from real interest parity 2010DOES REAL INTEREST RATE PARITY HOLD FOR OECD COUNTRIES? NEW EVIDENCE USING PANEL STATIONARITY TESTS WITH CROSS-SECTION DEPENDENCE AND STRUCTURAL BREAKS 2015A RE‐EXAMINATION OF REAL INTEREST PARITY IN CEECs USING ‘OLD’ AND ‘NEW’ SECOND‐GENERATION PANEL UNIT ROOT TESTS 2011Real interest parity: A note on Asian countries using panel stationarity tests

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