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The paper finds significant deviations between short-term emerging market real interest rates and world real interest rates primarily due to the inflationary expectations of the local investor base. We test for long-run real interest convergence in emerging markets using a time varying panel unit root test proposed by Pesaran to capture the improved macro-economic fundamentals since early 1990s. We also estimate the speed of convergence in the presence of a shock. The paper suggests that real interest rates in the emerging markets show some convergence in the long run but real interest parity does not hold. Our results also find that the speed of adjustment of real rates to a shock is estimated to differ significantly across the emerging markets. Measured by their half-life, some emerging markets in Asia, E.Europe and S.Africa, where real interest rates are generally low, take much longer to adjust than where real interest rates are generally high (Latin America, Turkey). From a policy perspective, encouraging foreign investors to take direct exposure at the short end of the local debt market could lower the real interest rates in some emerging markets.

Electronic books. -- local. --- Globalization -- Developing countries -- Econometric models. --- Interest rates -- Developing countries -- Econometric models. --- Monetary policy -- Developing countries -- Econometric models. --- Finance --- Business & Economics --- Banking --- Interest rates --- Globalization --- Monetary policy --- Econometric models. --- Monetary management --- Global cities --- Globalisation --- Internationalization --- Money market rates --- Rate of interest --- Rates, Interest --- Economic policy --- Currency boards --- Money supply --- International relations --- Anti-globalization movement --- Interest --- Banks and Banking --- Finance: General --- Inflation --- Interest Rates: Determination, Term Structure, and Effects --- Price Level --- Deflation --- General Financial Markets: General (includes Measurement and Data) --- Macroeconomics --- Real interest rates --- Interest rate parity --- Market interest rates --- Securities markets --- Prices --- Capital market --- South Africa

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International finance --- Third World: economic development problems --- Money --- Monetary policy --- Interest rates --- Banks and banking --- Econometric models. --- LDC / Developping Countries - Pays En Développement --- 333.100 --- 338.340 --- 333.101 --- 333.110 --- 338.8 --- 336.61 --- 333.400 --- 339.312.0 --- 336.01 --- 339.311.0 --- 333.830 --- Algemeenheden. Theorie en principes van de bankorganisatie en -techniek. --- Algemene ontwikkeling in de Derde Wereld. --- Banksysteem en bankstelsel. --- Centrale banken en parastatale kredietinstellingen: algemeen. Overheidsbemoeiïng inzake organisatie en verdeling van het krediet. --- Economische groei. --- Financieel beleid. --- Geldwezen: algemeenheden. --- Investeringen: algemeenheden. --- Overheidsbemoeiing op economisch gebied. --- Sparen: algemeenheden. --- Theorieën en algemeenheden over geldrente. --- Econometric models --- Developing countries --- Taux d'intérêt --- Developing countries: economic development problems --- Currency --- Monetary question --- Money, Primitive --- Specie --- Standard of value --- Monetary management --- Money market rates --- Rate of interest --- Rates, Interest --- Agricultural banks --- Banking --- Banking industry --- Commercial banks --- Depository institutions --- Algemeenheden. Theorie en principes van de bankorganisatie en -techniek --- Banksysteem en bankstelsel --- Centrale banken en parastatale kredietinstellingen: algemeen. Overheidsbemoeiïng inzake organisatie en verdeling van het krediet --- Geldwezen: algemeenheden --- Theorieën en algemeenheden over geldrente --- Overheidsbemoeiing op economisch gebied --- Financieel beleid --- Algemene ontwikkeling in de Derde Wereld --- Economische groei --- Sparen: algemeenheden --- Investeringen: algemeenheden --- Finance --- Financial institutions --- Exchange --- Value --- Coinage --- Currency question --- Gold --- Silver --- Silver question --- Wealth --- Economic policy --- Currency boards --- Money supply --- Interest --- Money - Developing countries - Econometric models. --- Monetary policy - Developing countries - Econometric models. --- Interest rates - Developing countries - Econometric models. --- Banks and banking - Developing countries - Econometric models.