Controlling for structural breaks, this study examines whether the relationship between the interest rate and inflation exhibits common stochastic trends in a sample of Sub-Saharan Africa (SSA) economies. The results indicate that while the Fisher effect does not hold for the entire sample period, 1980:I-2005:II nor in pre-economic reforms period, this relationship holds for the post-economic reforms (deregulated financial markets and exchange rate float regime) period, 1995:I-2005:II. Further, from the vector error-correction model (VECM), we find a less than proportionate response of short-term adjustment of the nominal interest rate to expected inflation. This implies that, compared to the long-term, in the short-term the nominal interest rate are poor predictors of inflation and the monetary policy in these countries is unlikely to impact on ex ante real interest rates in the long-term.
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Find related papers by JEL classification: C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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Koustas, Z., Serletis, A., 1998.
"On the Fisher Effect,"
Papers
98-09, Calgary - Department of Economics.
Apostolos Serletis & Zisimos Koustas, 1998.
"On the Fisher Effect,"
Working Papers
1998-09, Department of Economics, University of Calgary, revised 01 Sep 1998.