A RE‐EXAMINATION OF REAL INTEREST PARITY IN CEECs USING ‘OLD’ AND ‘NEW’ SECOND‐GENERATION PANEL UNIT ROOT TESTS |
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| Authors: | Claudiu Tiberiu Albulescu Dominique Pépin Aviral Kumar Tiwari |
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| Affiliation: | 1. Management Department, Politehnica University of Timisoara, Timisoara, Romania;2. CRIEF, University of Poitiers, France;3. IFHE University, Dontanpalli, Hyderabad, India |
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| Abstract: | This study applies ‘old’ and ‘new’ second‐generation panel unit root tests to check the validity of the 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. 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 that support the RIP hypothesis, and the results of the ‘old’ tests used as a benchmark. Nevertheless, when the ‘new’ tests are 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 CEECs should be considered with caution, because the RIP hypothesis is sensitive to the retained reference rate for computing the real interest rate differential, and also to the retained countries in the sample. |
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| Keywords: | CEECs panel unit root tests real interest parity C33 F36 G15 |
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