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Equality of interest rates revisited: the multi-country evidence

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  • Song-Zan Chiou Wei
  • Zhen Zhu

Abstract

One influential aspect of international integration of financial markets is the possibility of reducing divergences between domestic interest rates and foreign interest rates or increasing the degree to which yields in different financial markets move together over time. In this study, we investigate the convergence of the real interest rates using the Kalman filter. Applying the modified Hall et al. (1997) approach, we model the risk premium and convergence of real interest rates using the time-varying parameter estimation techniques. We present evidence of risk premium and convergence for two blocks of countries—The Asian-Pacific countries including the US, Japan, Taiwan and South Korea and the US-European group including France, the UK, Germany and the US.

Suggested Citation

  • Song-Zan Chiou Wei & Zhen Zhu, 2004. "Equality of interest rates revisited: the multi-country evidence," International Economic Journal, Taylor & Francis Journals, vol. 18(2), pages 245-257.
    • Handle: RePEc:taf:intecj:v:18:y:2004:i:2:p:245-257
    DOI: 10.1080/1016873042000228367
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