Asian real interest rates, non-linear dynamics and international parity
2005-08-12T16:29:50Z (GMT) by
This study tests for non-linearities in the real interest differentials of four South East Asian economies with respect to Japan and the U.S. The logistic and exponential smooth transition regression models are applied to monthly data over the sample period 1977M1-2000M3. There is evidence of nonlinearities in Asian real interest differentials where nonlinearities are often captured by the logistic smooth transition autoregressive model. The extent of non-linearities varies across the sample with the Singapore-Japan and Thailand-Japan differentials exhibiting the sharpest transition from one regime to another. Large shocks to real interest parity are more likely to lead to the reestablishment of parity at a faster rate than small shocks. Modeling the non-linear stochastic dynamics of real interest parity can thus be useful for policy-making purposes in recovering information on monetary and financial crises.