Real interest rates, inflation and the open economy : a regime-switching perspective on Australia and New Zealand

Holmes, Mark, Dutu, Richard and Cui, Xiaoman 2009, Real interest rates, inflation and the open economy : a regime-switching perspective on Australia and New Zealand, International review of economics & finance, vol. 18, no. 2, pp. 351-360.

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Title Real interest rates, inflation and the open economy : a regime-switching perspective on Australia and New Zealand
Author(s) Holmes, Mark
Dutu, Richard
Cui, Xiaoman
Journal name International review of economics & finance
Volume number 18
Issue number 2
Start page 351
End page 360
Publisher Elsevier
Place of publication Amsterdam, The Netherlands
Publication date 2009-03
ISSN 1059-0560
1873-8036
Keyword(s) stationarity
regime-switching
real interest rate
parity
Summary We investigate the time-series properties of Australian and New Zealand real interest rates within a Markov-switching framework. This enables us to identify characteristics in real interest rate behavior hitherto unacknowledged. We find that rates switch between alternative stationary regimes characterized by differing means, speeds of mean-reversion and volatility. For New Zealand, high rates of inflation increase the probability of remaining in a regime characterized by a faster speed of adjustment. Further application of this methodology considers the real interest rate differential between Australia and New Zealand and points to differing regimes based on volatility rather than persistence.
Language eng
Field of Research 140212 Macroeconomics (incl Monetary and Fiscal Theory)
Socio Economic Objective 910199 Macroeconomics not elsewhere classified
HERDC Research category C1.1 Refereed article in a scholarly journal
Copyright notice ©2008, Elsevier Inc.
Persistent URL http://hdl.handle.net/10536/DRO/DU:30023833

Document type: Journal Article
Collections: Faculty of Business and Law
Deakin Graduate School of Business
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