Do real interest rates converge? Evidence from the European union

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Andros GregoriouBrunel Business School Alexandros Kontonikas University of Glasgow, Department of Economics AbstractWe test for real interest parity (RIP) in the EU25 area. Our contribution is two-fold: First, we account for the previously overlooked effects of structural breaks on real interest rate differentials. Second, we test for RIP against the EMU average. For the majority of our sample countries we obtain evidence of real interest rate convergence towards the latter. Convergence, however, is a gradual process subject to structural breaks, typically falling close to the launch of the euro. Our findings have important implications relating to the single monetary policy and the progress new EU members have achieved towards joining the euro.

Fiscal Shocks, Public Debt, and Long-Term Interest Rate Dynamics

“…(solid line, lower left panel). 3 The observed patterns indicate that the permanent stochastic component driving the long-term interest rate l P t is almost entirely determined by cumulated …scal shocks. Also, the pattern seems compatible with …scal deterioration (retrenchment) leading to higher (lower) interest rates.…”

Examining real interest parity: Which component reverts quickest and in which regime?

“…By allowing for structural breaks in unit root tests, Fountas and Wu (1999) and Arghyrou et al (2009) find that there is evidence in favour of RIP in the EU member countries.…”

How Related are Interbank and Lending Interest Rates? Evidence on Selected European Union Countries

“…The loss of monetary independence may imply differential transmission dynamics towards a common steady-state. This may result in sub-optimal economic stabilization and other costs, as the welfare implications of ultimately transitory yet persistent real interest rate differentials are unknown but significant (Arghyrou et al, 2009). …”