Holmes, M. J. & Wang, P. (2009). Are real interest rates of EU association countries characterized by non-linear convergence? Research in Applied Economic, 1(1), E13.
Permanent Research Commons link: http://hdl.handle.net/10289/3711
In this study, we concurrently test for nonlinearity (threshold) effects and non-stationarity (unit roots) in real interest rate differentials. Using data for the ten accession countries that joined the EU in 2004, we find evidence of strong nonlinear effects. Long-run real interest rate parity has held for some of the sample, but subject to two different stationary regimes. Other countries are characterized with partial unit root behaviour insofar as differentials switch between alternative regimes of stationary and non-stationary behaviour.
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