We thank two anonymous referees and the editor Pok-sang Lam for helpful remarks. Financial support by Deutsche Forschungsgemeinschaft (HE 2188/3-1) is also gratefully acknowledged.
Convergence of Real Capital Market Interest Rates—Evidence from Inflation Indexed Bonds
Article first published online: 27 SEP 2011
© 2011 The Ohio State University
Journal of Money, Credit and Banking
Volume 43, Issue 7, pages 1523–1541, October 2011
How to Cite
HERWARTZ, H. and ROESTEL, J. (2011), Convergence of Real Capital Market Interest Rates—Evidence from Inflation Indexed Bonds. Journal of Money, Credit and Banking, 43: 1523–1541. doi: 10.1111/j.1538-4616.2011.00434.x
- Issue published online: 27 SEP 2011
- Article first published online: 27 SEP 2011
- Received April 3, 2007; and Accepted February 7, 2011.
- Treasury inflation-protected securities;
- real interest parity;
- uncovered interest parity;
- ex ante real interest rates;
- market integration;
- U.S. dominance
This paper investigates the convergence of long-term ex ante real interest rates (RIRs) obtained from Canadian, French, UK, and U.S. inflation indexed government bonds. In contrast to previous research, our evidence suggests full convergence in the long run and, hence, capital market integration. For the same sample period, global convergence is rejected for RIRs measured in conventional terms. From these results, we conclude that previous tests of the long-run real interest rate parity might have suffered from weak measurement of real capital market interest rates.