Policy-Induced Mean Reversion in the Real Interest Rate?

Zisimos Koustas and Jean-Francois Lamarche ()

No 503, Working Papers from Brock University, Department of Economics

Abstract: This paper utilizes tests for a unit root that have power against nonlinear alternatives to provide empirical evidence on the time series properties of the ex-post real interest rate in the G7 countries. We find that the unit-root hypothesis can be rejected in the presence of a nonlinear alternative motivated by theoretical literature on optimal monetary policy rules. This represents a reversal of the results obtained using standard linear unit-root and cointegration tests. Tests for linearity reject this hypothesis for Canada, France, Germany, Italy, and the US. For these countries we estimate nonlinear models to capture the dynamics of the ex-post real interest rate.

Keywords: Fisher Effect; Unit Roots; Self-Exciting Threshold Autoregression (search for similar items in EconPapers)
JEL-codes: C32 E40 E50 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2005-07, Revised 2005-07
New Economics Papers: this item is included in nep-ets, nep-fmk and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://brocku.ca/repec/pdf/0503.pdf First version, July 2005 (application/pdf)

Related works:
Working Paper: Policy-Induced Mean Reversion in the Real Interest Rate? (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:brk:wpaper:0503

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