Int. Fin. Markets, Inst. and Money 16 (2006) 384–396 Are international real interest rate linkages characterized by asymmetric adjustments? Mark J. Holmes a,∗ , Nabil Maghrebi b a Department of Economics, Waikato University Management School, New Zealand b Faculty of Economics, Wakayama University, Japan Received 18 August 2004; accepted 15 June 2005 Available online 6 September 2005 Abstract This study tests for asymmetries in the adjustment mechanism towards real interest parity using monthly data over the period 1973–2004 for the U.S. and a sample of other OECD economies. There is stronger evidence of long-run cointegrating relationships when an explicit distinction is made between decreasing and increasing deviations from equilibrium. The speed of mean-reversion tends to be fastest when momentum gathers for increasing rather than decreasing deviations. This evidence is consistent with asymmetric monetary policy responses where close linkages with respect to the U.S. are likely to be less prevalent in a regime of rising nominal interest rates and falling inflation. © 2005 Elsevier B.V. All rights reserved. JEL classification: E4; F3; G1 Keywords: Real interest parity; Asymmetries; Cointegration 1. Introduction An assessment of the equilibrium relationship between real interest rates across countries is useful in providing a measure of the degree of market frictions or integration. Assessing the economic significance and persistence of deviations from real interest parity (RIP) requires ∗ Corresponding author. Tel.: +64 7 838 4454; fax: +64 7 838 4331. E-mail address: holmesmj@waikato.ac.nz (M.J. Holmes). 1042-4431/$ – see front matter © 2005 Elsevier B.V. All rights reserved. doi:10.1016/j.intfin.2005.06.001