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Are Real Interest Rates Equal Across Countries? An Empirical Investigation of International Parity Conditions
Author(s) -
MISHKIN FREDERIC S.
Publication year - 1984
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1984.tb04911.x
Subject(s) - economics , ex ante , interest rate parity , international fisher effect , relative purchasing power parity , empirical evidence , real interest rate , econometrics , interest rate , purchasing power parity , parity (physics) , financial economics , monetary economics , macroeconomics , exchange rate , nominal interest rate , philosophy , physics , epistemology , particle physics
This paper conducts empirical tests of the equality of real interest rates across countries. The empirical evidence strongly rejects the hypothesis of real rate equality and the joint hypotheses of uncovered interest parity and ex ante relative PPP, or the unbiasedness of forward rate forecasts and ex ante relative PPP. The evidence suggests that it is worth studying open economy macroeconomic models which allow: 1) domestic real rates to differ from world rates, 2) time varying risk premiums in the forward market, or 3) deviations from ex ante relative PPP.