Mean Reversion in Interest Rates in Emerging Countries

B. Candelon*, L.A. Gil-Alana*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


In this paper we examine the stochastic behavior of short-run interest rates in several emerging countries using fractional integration techniques. We allow for a much richer flexibility in the dynamic behavior of the series than the classical representations based on i(0) or i(1) processes. It appears that for singapore and thailand nominal interest rates are mean-reverting, whereas for mexico, malaysia, the philippines, and korea, the presence of a unit-root test depends on the assumptions regarding the residuals’ autocorrelation. The results also suggest that uncovered interest parity (uip) can only hold for two emerging countries. For the other countries, the stabilization policies in the aftermath of the currency crises have led to the rejection of the uip hypothesis.
Original languageEnglish
Pages (from-to)119-135
JournalReview of International Economics
Issue number1
Publication statusPublished - 1 Jan 2006


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