Publication Details

Felmingham, B. & Cooray, A. V. (2008). Real interest rate interdependence among the G7 nations: does real interest parity hold?. Journal of International Finance and Economics, 8 (1), 14-22.


We evaluate the extent of real interest rate interdependence among three month treasury bill rates of the G7. Monthly data over the period 1970(1) to 2003(12) is subjected to recursive estimation of a cointegrating equation. The evidence suggests a high degree of interdependence between the G7 interest rates with the degree of integration increasing over the sample period. Tests for parameter constancy highlight the disruptive effects of the first oil price shock although the impacts on financial markets of the September 11 and the attack occurrence of the Asian crisis have limited impacts. The evidence for the presence of a leading nation among the G7 is inconclusive although Germany and the US are the prime leadership contenders. The high degree of interdependence between the G7 financial markets suggests that capital between the G7 is highly mobile.

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Journal of International Finance and Economics