Real Interest Rate Stationarity and Per Capita Consumption Growth Rate
University of Cincinnati, Economics Working Papers Series
18 Pages Posted: 26 Apr 2005 Last revised: 7 Jul 2008
Date Written: January 2007
Many economic theories connecting the real interest rate and the per-capita consumption growth rate require that both rates evolve together over time. This paper investigates whether these rates present similar stationary behavior for the seven most industrialized countries over the 1957-2005 period. The analysis relies on the unit root tests developed by Elliott, Rothenberg and Stock (1996) and Lopez (2006) to look for stationary or regime-wise stationary behavior, respectively. Furthermore, the final break selection uses Bai and Perron's (2003) method. The results show for all the countries considered that both rates are either stationary or regime-wise stationary with a same number of breaks and, mostly, corresponding dates. The results hold whether the rates are calculated annually or quarterly.
Keywords: Interest rates, time breaks, consumption growth rates, unit root
JEL Classification: E2, E4, C22
Suggested Citation: Suggested Citation