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Real interest rate differentials usually exhibit two properties; structural breaks and asymmetric dynamics. In this paper, we use various types of Quantile Unit Root Test (QURT) which accounts for both properties. Unlike previous research, we reject the unit root in the real interest rate differentials in 18 out of 21 OECD countries as well as in 4 out of 5 BRICS countries using QURT with sharp and smooth breaks.

This study applies the threshold unit root test proposed by Caner and Hansen (2001) to test the validity of long-run purchasing power parity (PPP) in a sample of 15 Latin American countries. These countries share characteristics as high inflation, nominal shocks and trade openness which might have led to quicker adjustment in relative prices and contributed for PPP to hold. The empirical results indicate that most of the real exchange rates in these 15 Latin American countries adjustments are in equilibrium with the relevant fundamentals behaving like a nonlinear process, characterized by a unit root process. These results provide support for PPP for only six of these 15 Latin American countries under study, and the governments of these countries can use PPP to predict exchange rate that determines whether a currency is over or undervalued and experiencing difference between domestic and foreign inflation rates.

We revisit the causal links among financial development, trade openness and economic growth in China using a newly developed Bootstrap ARDL test over the period of 1978-2015. Empirical results indicate no long-run relationship among these three variables and Granger causality test based on ARDL model indicates a feedback between trade openness and economic growth and between trade openness and financial development and a one-way Granger causality running from financial development supporting supply-leading hypothesis. By looking at the sign of coefficients of the independent variable that we find both financial development and trade openness promote economic growth and economic growth further reduce trade openness. These empirical results have important policy implications for the government conducting both financial development and trade openness strategies to promote economic growth in China and financial development strategy is the most important one. Apparently our results support the supply-leading hypothesis in China.

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