Examining real interest parity: which component reverts quickest and in which regime?
Kavita Sirichand
Andrew Vivian
Mark Wohar
2134/16923
https://repository.lboro.ac.uk/articles/Examining_real_interest_parity_which_component_reverts_quickest_and_in_which_regime_/9501779
This article re-examines real interest parity (RIP), focusing upon which component of real interest parity drives convergence to parity. We find that it is the reversion of inflation rather than nominal interest rates which is the primary source of convergence to RIP. Nominal interest rate differentials are found to be persistent during both periods. Furthermore, we additionally find that mean reversion in the inflation differentials is faster during the Gold Standard period.
2015-03-06 15:08:04
Comovement
Real interest rate parity
Inflation differential
Nominal interest rate differential
Fisher effect
Gold Standard
Floating exchange rate