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Convergence of Real Capital Market Interest Rates—Evidence from Inflation Indexed Bonds
Author(s) -
HERWARTZ HELMUT,
ROESTEL JAN
Publication year - 2011
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2011.00434.x
Subject(s) - economics , convergence (economics) , interest rate , real interest rate , monetary economics , inflation (cosmology) , interest rate parity , econometrics , capital market , capital (architecture) , sample (material) , bond , financial economics , macroeconomics , finance , geography , chemistry , physics , archaeology , chromatography , theoretical physics
This paper investigates the convergence of long‐term ex ante real interest rates (RIRs) obtained from Canadian, French, UK, and U.S. inflation indexed government bonds. In contrast to previous research, our evidence suggests full convergence in the long run and, hence, capital market integration. For the same sample period, global convergence is rejected for RIRs measured in conventional terms. From these results, we conclude that previous tests of the long‐run real interest rate parity might have suffered from weak measurement of real capital market interest rates.