Abstract
In this article, we investigate the financial linkages between the East Asian economies with Japan and the United States. We test for long-run Real Interest-rate Parity (RIP) using an array of panel-data techniques, including recent techniques developed by Breuer et al. (2002) and Carrion-i-Silvestre et al. (2005). This study offers two important results: first, the failure to account for structural breaks in the industrialized countries and Asian emerging economies is likely to provide evidence of nonstationary series that are stationary. Second, we found strong evidence that the parity condition holds in all the Asian countries. The failure of earlier studies to confirm mean reversion of Real Interest-rate Differential (RID) may reflect the choice of estimation/testing procedure rather than any inherent deficiency in the RIP.
| Original language | English |
|---|---|
| Pages (from-to) | 1979-1990 |
| Number of pages | 12 |
| Journal | Applied Economics |
| Volume | 43 |
| Issue number | 16 |
| DOIs | |
| State | Published - Jun 2011 |
Bibliographical note
Funding Information:Financial support from the Ministry of Higher Education [Grant No. 06-02-03-054J-55177] is acknowledged. The authors would like to thank the referees of this journal and the participant of the 5th INFINITI Conference on International Finance in Dublin for useful comments on an earlier version of this article. The authors are grateful to Breuer, McNown and Wallace for providing the authors with the SURADF program code for simulating critical values test necessary for the testing of the hypothesis. Any remaining errors and omissions are our own.
ASJC Scopus subject areas
- Economics and Econometrics