9-27

• Holmes, Mark J.
• Wang, Ping

Real convergence among the ten EU 2004 accession economies is investigated with respect to long-run real interest parity. We employ a novel approach where unit root tests for real interest differentials are embedded within a Markov regime switching framework. Whereas standard univariate unit-root tests provide mixed support for parity, we find parity is present in all cases where differentials either switch between regimes of stationary and non-stationarity behavior, or between alternative regimes of stationarity characterized by differing degrees of persistence. Further insights are obtained from the inferred probabilities of being in each regime, and the regime-switching nature of the differential variances.

• Economics and Business
• Computer and information sciences

• Economics
• Statistics

real interest parity, stationarity, Markov regime-switching

Περιέχει σημειώσεις, πίνακες, διαγράμματα και βιβλιογραφία, We are grateful for the helpful comments provided by two anonymous referees. The usual disclaimer applies., JEL Classification: C330, E430, F300, G150