Prior research using the ex ante real interest rate has led to mixed evidence about the validity of the Fisher relationship and for the Real Interest Parity hypothesis. In particular, authors have disagreed over whether the ex ante real rate of interest is stationary or not, and have therefore used different econometric methodologies to test the theories. Such a controversy may stem from the methods used in constructing the ex ante real interest rate since the measurement of the unobserved real interest rate required underlying assumptions of the forecasting behavior of agents. Our findings indicate that the time series properties of the constructed ex ante real interest rate appear to be sensitive not only to the method used, but also to the choice of inflation rate calculation used to construct the series. Therefore, we would anticipate that hypothesis testing that involves the ex ante real interest rate will provide a wide range of conclusions depending on the methodology used to construct the real rates. To examine whether different approaches of constructing the real interest rate series matter in real interest rate parity (RIP) hypothesis testings, different linear methods of testing real interest rate parity are employed to analyze the real interest rate linkages among a group of OECD countries. The stationarity conclusions of the real interest rates series are subject to the choice of methods of constructing the underlying real interest rates. Thus, this leads to problems of selecting the methodology of conducting RIP tests. If the real interest rates are assumed to be stationary, the standard linear regression tests of real rate equalization will be adequate. Otherwise, a cointegration technique will be more appropriate to test for the stationary relationship among the variables. By assuming nonstationary real interest rates, we investigate whether there exists a common trend among the real interest rates by using bivariate and multivariate cointegration tests. The findings indicates that the existence of RIP depends substantially on how the real rates are computed. The final essay deals with the effects of the choice of interest rate methodology on nonlinear tests of RIP. Research has found evidence supporting gradual regime-switching behavior of real interest rate adjustments due to the existence of transactions costs. There may be no response of domestic rate to foreign rate changes when the deviation between the real rates is small due to transactions costs. However, when shocks to both rates are large enough to make arbitrage profitable, this may evoke quick adjustments to restore the parity. We investigate nonlinear adjustments of real interest rates toward the long-run equilibrium using the smooth transition autoregressive (STAR) models. Both logistic (LSTAR) and exponential (ESTAR) smooth transition autoregressive models are considered. The findings indicate that there exists nonlinearities in OECD real interest rate adjustment. However, the types of models as well as the speed of reestablishing RIP depend on the approaches used in measuring the underlying real interest rates. / A Dissertation submitted to the Department of Economics in partial fulfillment of
the requirements for the degree of Doctor of Philosophy. / Degree Awarded: Summer Semester, 2005. / Date of Defense: May 20, 2005. / Stationarity, Nonlinear Model, Real Interest Rate Parity / Includes bibliographical references. / Stefan Norrbin, Professor Directing Dissertation; Xu-Feng Niu, Outside Committee Member; Paul Beaumont, Committee Member; Milton Marquis, Committee Member.
| Identifer | oai:union.ndltd.org:fsu.edu/oai:fsu.digital.flvc.org:fsu_168879 |
| Contributors | Pipatchaipoom, Onsurang (authoraut), Norrbin, Stefan (professor directing dissertation), Niu, Xu-Feng (outside committee member), Beaumont, Paul (committee member), Marquis, Milton (committee member), Department of Economics (degree granting department), Florida State University (degree granting institution) |
| Publisher | Florida State University |
| Source Sets | Florida State University |
| Language | English, English |
| Detected Language | English |
| Type | Text, text |
| Format | 1 online resource, computer, application/pdf |
Page generated in 0.0025 seconds