New Panel Evidence on International Interest Rate Linkage
19 Pages Posted: 30 Dec 2012
Date Written: December 30, 2012
Abstract
In this paper, nominal interest rate linkages between 11 OECD countries are examined. As required for the uncovered interest parity (UIP) to hold empirically, the differentials between the interest rates of Germany (or the US) and the other countries should be stationary. Monthly short-term, medium-term and long-term interest rates are investigated using two types of panel unit root tests. Whereas obtaining mixed evidence for the US differentials, the results on German differentials all point towards stationarity. In particular over medium and long horizons the interest rate linkage is highly significant.
Keywords: Panel Unit Root Test, Uncovered Interest Rate Parity, Combination of p-values
JEL Classification: C12, C23, E43
Suggested Citation: Suggested Citation
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