Open AccessAre Real Interest Rates of EU Accession Countries Characterized by Non-Linear Convergence?
Author(s) -
Mark J. Holmes,
Ping Wang
Publication year - 2009
Publication title -
research in applied economics
Language(s) - English
Resource type - Journals
ISSN - 1948-5433
DOI - 10.5296/rae.v1i1.303
Subject(s) - accession , unit root , econometrics , convergence (economics) , economics , nonlinear system , sample (material) , unit root test , parity (physics) , mathematics , monetary economics , international economics , macroeconomics , physics , cointegration , thermodynamics , european union , particle physics , quantum mechanics
In this study, we concurrently test for nonlinearity (threshold) effects and non-stationarity (unit roots) in real interest rate differentials. Using data for the ten accession countries that joined the EU in 2004, we find evidence of strong nonlinear effects. Long-run real interest rate parity has held for some of the sample, but subject to two different stationary regimes. Other countries are characterized with partial unit root behaviour insofar as differentials switch between alternative regimes of stationary and non-stationary behaviour