A RE-EXAMINATION OF REAL INTEREST PARITY IN CEECs USING 'OLD' AND 'NEW' SECOND GENERATION PANEL UNIT ROOT TESTS

Claudiu Tiberiu Albulescu (1) , Dominique Pépin (1) , Aviral Kumar Tiwari (2)

1 CRIEF [Poitiers] - Centre de recherche sur l'intégration économique et financière
2 ICFAI University Tripura

This study applies 'old' and 'new'second generation panel unit root tests to check the validity of long-run real interest rate parity (RIP) hypothesis for ten Central and Eastern European Countries (CEECs), with respect to the Euro area and an average of the CEECs' real interest rates, respectively.When the 'new'panel unit root tests are carried out relative to the Euro area rate as reference, we confirm the results of previous studies which support the RIP hypothesis, and of the 'old' tests used as benchmark. Nevertheless, when the 'new' testsare performed using the average of the CEECs' rate as reference, our results are mitigated, revealing that the hypothesis of CEECs' interest rates convergence cannot be taken for granted. From a robustness analysis perspective, our findings indicate that the RIP hypothesis for CEECsshould be considered with cautions, being sensitive to the reference rate and to the countries retained in the sample.

Mots clés: CEECs; panel unit root tests; real interest parity

Domaines: Finance quantitative [q-fin.CP]

Claudiu Tiberiu Albulescu, Dominique Pépin, Aviral Kumar Tiwari. A RE-EXAMINATION OF REAL INTEREST PARITY IN CEECs USING 'OLD' AND 'NEW' SECOND GENERATION PANEL UNIT ROOT TESTS. 2014. ⟨hal-01089380⟩