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Real Interest Rate Parity and Two Structural Breaks: African Countries Evidence

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  • Chi‐Wei Su
  • Hsu‐Ling Chang
  • Yan Liu

Abstract

This study applies Narayan and Popp's () unit‐root test with two endogenous breaks to assess the validity of long‐run real interest rate parity (RIRP) via investigating the non‐stationary properties of the real interest rate convergence relative to South Africa for ten African countries. This method has been proven to be more powerful than the other unit root models with two breaks (Narayan and Popp, ). Our findings clearly indicate that RIRP holds true for five countries, which implies that the choices and effectiveness of the monetary and fiscal policies in the African economies will be highly influenced by external factors originating from South Africa. Our results have important policy implications for these African countries under study.

Suggested Citation

  • Chi‐Wei Su & Hsu‐Ling Chang & Yan Liu, 2013. "Real Interest Rate Parity and Two Structural Breaks: African Countries Evidence," African Development Review, African Development Bank, vol. 25(4), pages 478-484, December.
    • Handle: RePEc:bla:afrdev:v:25:y:2013:i:4:p:478-484
    DOI: 10.1111/1467-8268.12043
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