Item

Real interest rates, inflation and open economy: A regime-switching perspective on Australia and New Zealand

Abstract
We investigate the time-series properties of Australian and New Zealand real interest rates within a Markov-switching framework. This enables us to identify characteristics in real interest rate behavior hitherto unacknowledged. We find that rates switch between alternative stationary regimes characterized by differing means, speeds of mean-reversion and volatility. For New Zealand, high rates of inflation increase the probability of remaining in a regime characterized by a faster speed of adjustment. Further application of this methodology considers the real interest rate differential between Australia and New Zealand and points to differing regimes based on volatility rather than persistence.
Type
Journal Article
Type of thesis
Series
Citation
Holmes, M., Dutu, R. & Cui, X. (2009). Real interest rates, inflation and open economy: A regime-switching perspective on Australia and New Zealand. International Review of Economics and Finance, 18 (2), 351-360.
Date
2009
Publisher
Elsevier
Degree
Supervisors
Rights
Publisher version