Real bond return parity

Abstract

We test a set of assumptions that imply the return parity of long-run, real bonds denominated in different currency numeraire. The joint hypothesis is rejected in our post-2009 sample of developing and developed market currencies; however, we document a strong relationship between changes in the log of bilateral, real exchange rate and real holding period bond returns in the direction of parity, contributing to the Meese-Rogoff puzzle on exchange rate determination.