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Article Citation - WoS: 2Citation - Scopus: 2Re-Examining the Real Interest Rate Parity Hypothesis Under Temporary Gradual Breaks and Nonlinear Convergence(Springer Heidelberg, 2023) Hasanov, Mubariz; Omay, Tolga; Abioglu, VasifThis paper investigates the real interest parity hypothesis by testing stationarity of real interest rate differentials for 52 countries with respect to the USA. Taking account of the fact that both asymmetric adjustment and gradual temporary breaks may better characterize the dynamics of real interest rate differentials, we propose a new test that allows for two temporary shifts together with asymmetric adjustment towards the equilibrium. We employ the newly proposed test procedure along with the conventional ADF test as well as nonlinear KSS and OSH tests to examine stationarity of real interest rate differentials. Among the main results, we find that the newly proposed unit root test procedure highly outperforms the existing unit root tests in terms of rejecting the null hypothesis of unit root. Our results suggest that real interest rate differentials can be characterized by a stationary process with asymmetric adjustment around gradual and temporary shifts of mean.Article Real Interest Rate Parity in Latin American Countries: Evidence from New Panel Unit Root Tests(Wiley, 2026) Omay, Tolga; Abioglu, Vasif; Hasanli, MubarizIn this study, we test the empirical validity of the real interest rate parity hypothesis for 15 Latin American countries over the period 2005-2023. To this end, we employ a battery of panel unit root tests to examine stochastic properties of the real interest rate differentials (RIDs) of the countries under consideration. The panel unit root tests that allow for both the cross-sectional dependence and the nonlinearities in the adjustment process do not reject the null of unit root for the most of these countries, suggesting that the real interest rate parity hypothesis does not hold for these countries. On the other hand, the panel unit root test that allows for smooth structural changes produces results consistent with the real interest rate parity hypothesis for 12 out of 15 Latin American countries. These findings imply that various shocks, including political, economic, and financial upheavals, can cause significant structural shifts in the RIDs of Latin American countries.
