Testing Real Interest Parity in Emerging Markets PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Testing Real Interest Parity in Emerging Markets PDF full book. Access full book title Testing Real Interest Parity in Emerging Markets by Manmohan Singh. Download full books in PDF and EPUB format.
Author: Manmohan Singh
Publisher: International Monetary Fund
ISBN:
Category : Developing countries
Languages : en
Pages : 26
Get Book Here
Book Description
The paper finds significant deviations between short-term emerging market real interest rates and world real interest rates primarily due to the inflationary expectations of the local investor base. We test for long-run real interest convergence in emerging markets using a time varying panel unit root test proposed by Pesaran to capture the improved macro-economic fundamentals since early 1990s. We also estimate the speed of convergence in the presence of a shock. The paper suggests that real interest rates in the emerging markets show some convergence in the long run but real interest parity does not hold. Our results also find that the speed of adjustment of real rates to a shock is estimated to differ significantly across the emerging markets. Measured by their half-life, some emerging markets in Asia, E.Europe and S.Africa, where real interest rates are generally low, take much longer to adjust than where real interest rates are generally high (Latin America, Turkey). From a policy perspective, encouraging foreign investors to take direct exposure at the short end of the local debt market could lower the real interest rates in some emerging markets.
Author: Manmohan Singh
Publisher: International Monetary Fund
ISBN:
Category : Developing countries
Languages : en
Pages : 26
Get Book Here
Book Description
The paper finds significant deviations between short-term emerging market real interest rates and world real interest rates primarily due to the inflationary expectations of the local investor base. We test for long-run real interest convergence in emerging markets using a time varying panel unit root test proposed by Pesaran to capture the improved macro-economic fundamentals since early 1990s. We also estimate the speed of convergence in the presence of a shock. The paper suggests that real interest rates in the emerging markets show some convergence in the long run but real interest parity does not hold. Our results also find that the speed of adjustment of real rates to a shock is estimated to differ significantly across the emerging markets. Measured by their half-life, some emerging markets in Asia, E.Europe and S.Africa, where real interest rates are generally low, take much longer to adjust than where real interest rates are generally high (Latin America, Turkey). From a policy perspective, encouraging foreign investors to take direct exposure at the short end of the local debt market could lower the real interest rates in some emerging markets.
Author: Abhisek Banerjee
Publisher:
ISBN:
Category : Electronic books
Languages : en
Pages :
Get Book Here
Book Description
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
Author:
Publisher:
ISBN:
Category :
Languages : pt-BR
Pages :
Get Book Here
Book Description
"How internationally mobile is the world's supply of capital? Does capital flow among industrial countries to equalise the yield to investors? Alternatively, does the saving that originates in a country remain to be invested there? Or does the truth lie somewhere between these two extremes? The answers to these questions are not only important for understanding the international capital market but are critical for analysing a wide range of issues ..." [Feldstein and Horioka (1980), p. 314] The questions stated on the quote above, posed by Feldstein and Horioka (1980), still raise intense debate and resilient disagreement. It is peculiar that the liberalisation of capital and goods markets carried out in the last decades and the increasing speed of capital movement have not sealed the enigma put forward by Feldstein and Horioka (1980) more than twenty years ago. On the contrary, according to Obstfeld and Rogoff (2000, p. 341) this is still "one of the most robust and intractable puzzles in international finance". There are two central questions in this thesis. The first one is at the heart of Feldstein and Horioka (1980) concern: "Is there evidence on the existence of real interest rate differentials in a selected group of emerging and developed economies?" We provide an answer to this question in chapter 2. The second question: "What are the causes that underlie real interest rate differentials?" is the research objective of the next chapters. In brief, we investigate the existence and causes of ex post real interest rate differentials [rid(s) hereafter] in a group of economies. The countries chosen for our tests can be split into two groups. The first one comprises some small open-economies of emerging markets: Argentina, Brazil, Chile, Mexico and Turkey. The second group is composed of the open-economies of developed countries: France, Italy, Spain, the UK and Germany. Finally, we use the US as the reference large economy. The period of the tests broadly corresponds to the interval that spans from the mid 1990s to the beginning of the 2000s, with differences highlighted accordingly in each chapter. Both the period and the choice of the countries will be explained in following chapters, however, we can emphasise that this heterogeneous sample of countries allows inter-group comparisons and the detection of similar patterns between them(...).
Author: Mr.Evan Tanner
Publisher: International Monetary Fund
ISBN: 1451941641
Category : Business & Economics
Languages : en
Pages : 25
Get Book Here
Book Description
Ex-post deviations from uncovered interest parity (UIP) – realized differences between dollar returns on identical assets of different currencies – equal the real interest differential plus real exchange rate growth. Among industrialized countries, UIP deviations are largely explained by unanticipated real exchange rate growth, but among developing countries, real interest differentials are “where the action is.” This observation is due to the greater variability of inflation in developing countries, but may also stem from higher and more variable risks and capital controls in these countries. Also, among developing countries with moderate inflation, offsetting comovements of real interest differentials and real exchange growth support the sticky-price hypothesis.
Author: Dipak Das Gupta
Publisher:
ISBN:
Category : Capital market
Languages : en
Pages : 32
Get Book Here
Book Description
Policymakers must address the central questions: How much do world interest rates influence domestic rates? And what are the respective roles of monetary policy, real interest parity, expectations of change in the exchange rate, and "country risk?"
Author: C. Emre Alper
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
Financial account liberalizations since the second half of the 1980s paved the way for the burgeoning literature that investigates foreign exchange market efficiency in emerging markets (EMs) via testing for the uncovered interest parity (UIP) condition. This paper is the first to provide a broad and critical survey on this recent literature. Specifically, we attempt to answer the following questions. First, are the EMs different from the developed economies in the context of the UIP condition? Second, to what extent can these differences contribute to the debate on the UIP literature? Third, what are the empirical challenges specific to the EMs in testing for the UIP condition?
Author: Arnaud Mehl
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
Get Book Here
Book Description
This paper tests for uncovered interest parity (UIP) at distant horizons for the US and its main trading partners, including both mature and emerging market economies, also exploring the existence of nonlinearities. At long and medium horizons, it finds support in favour of the standard, linear, specification of UIP for dollar rates vis-à-vis major floating currencies, but not vis-à-vis emerging market currencies. Moreover, the paper finds evidence that, not only yield differentials widen, but that US bond yields do react in anticipation of exchange rate movements, notably when these take place vis-à-vis major floating currencies. Last, the paper detects signs of nonlinearities in UIP at the medium term horizon for dollar rates vis-à-vis some of the major floating currencies, albeit surrounded by some uncertainty.
Author: Richard T. Baillie
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
We suggest a new single-equation test for Uncovered Interest Parity (UIP) based on a dynamic regression approach. The method provides consistent and asymptotically efficient parameter estimates, and is not dependent on assumptions of strict exogeneity. This new approach is asymptotically more efficient than the common approach of using OLS with HAC robust standard errors in the static forward premium regression. The coefficient estimates when spot return changes are regressed on the forward premium are all positive and remarkably stable across currencies. These estimates are considerably larger than those of previous studies, which frequently find negative coefficients. The method also has the advantage of showing dynamic effects of risk premia, or other events that may lead to rejection of UIP or the efficient markets hypothesis.
Author: George Bagdatoglou
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
The real interest rate parity hypothesis is tested using data for the group of seven industrialized countries (G7) over the period 1970-2008. The contribution is two-fold. First, the paper utilizes the bounds approach in order to overcome uncertainty about the order of integration of real interest rates. Second, a test is made for structural breaks in the underlying relationship using a multiple structural breaks test. The results indicate significant parameter instability and suggest that, despite the advances in economic and financial integration, real interest rate parity has not fully recovered from a breakdown in the 1980s.
