We examine the interdependence of G7 90 day treasury bills on monthly data over the period 1970(1) to 2003(12). We find evidence for the presence of RIP among G7 treasury bill rates and on this evidence accept the hypothesis of a high degree of interdependence among G7 capital markets. We apply the time plot of a recursively estimated trace statistic to test for an increasing degree of integration and find little if any evidence of cointegration in the mid 1970s but interdependence increased markedly after the 1980 recession and again following the 1990 recession. From this time RIP appears to hold. A β parameter inconstancy is evident prior to mid 1979, however, the cointegration β parameters are constant over the period 1979(6) to 2003(12). The implications are explained and further research is indicated.
This conference paper originally published as Felmingham, B, and Cooray, A, An overview of real interest rate interdependence among the G7 nations, The Australian Conference of Economists, Western Australia: The Economic Society of Australia, Western Australia branch, 26-28 September, 2005, 1-23. Original paper available here.