Globalization, Long Memory, and Real Interest Rate Convergence: A Historical Perspective.
Abstract: Globalization, a complex phenomenon, reflects the interaction of many
technological, cultural, economic, social, and environmental trends. This paper
investigates a narrow aspect of three waves of globalizations that occurred in the last 150
years, which refers to the stochastic properties of real interest rates and real interest rate
differentials using fractional integration methods. The empirical results provide evidence
that in all three globalization waves rejects the hypothesis that a unit root exists in the real
interest rate series and supports the hypothesis of real interest rates converge across
countries. We fail to find evidence, however, that the results are uniformly consistent
across the three waves, suggesting that each globalization involves its own distinct
stochastic dynamics.
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