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Does Fisher Effect Apply in Developing Countries: Evidence From a Nonlinear Cotrending Test applied to Argentina, Brazil, Malysia, Mexico, Korea and Turkey

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Author Info
Maghyereh, A.
Al-Zoubi, H.

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Abstract

This study is aimed mainly to examine the possible existence of a relationship between the nominal interest rate and the inflation rate in developing countries (Argentina, Brazil, Malaysia, Mexico, Korea and Turkey) coming up from a common nonlinear trend between both series. Evidence is first presented that the null hypothesis of unit root with drift (constant or linear trend) has been rejected in favor of nonlinear trend stationarity. The paper also found a robust nonlinear cotrending relationship between the interest rate and the inflation rate and the hypothesis of full Fisher effect is accepted.

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Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

Volume (Year): 6 (2006)
Issue (Month): 2 ()
Pages:
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Handle: RePEc:eaa:aeinde:v:6:y:2006:i:2_3

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Related research
Keywords: Fisher effect; nonlinear cotrending; inflation; interest rate; developing countrie;

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Find related papers by JEL classification:
E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions

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  1. Phillips, P.C.B., 1986. "Testing for a Unit Root in Time Series Regression," Cahiers de recherche 8633, Universite de Montreal, Departement de sciences economiques.
    Other versions:
  2. Bierens, Herman J., 1997. "Testing the unit root with drift hypothesis against nonlinear trend stationarity, with an application to the US price level and interest rate," Journal of Econometrics, Elsevier, vol. 81(1), pages 29-64, November. [Downloadable!] (restricted)
  3. Carl Bonham, 1990. "Correct Cointegration Tests of the Long Run Relationship Between Nominal Interest and Inflation," Working Papers 199026, University of Hawaii at Manoa, Department of Economics. [Downloadable!]
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  4. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January. [Downloadable!] (restricted)
  5. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March. [Downloadable!] (restricted)
    Other versions:
  6. Wensheng Peng, 1995. "The Fisher Hypothesis and Inflation Persistence--Evidence from Five Major Industrial Countries," IMF Working Papers 95/118, International Monetary Fund.
  7. Bierens, H.J., 1996. "Nonparametric nonlinear cotrending analysis, with an application to interest and inflation in the U.S," Discussion Paper 62, Tilburg University, Center for Economic Research. [Downloadable!]
  8. Kate Phylaktis & David Blake, 1993. "The fisher hypothesis: Evidence from three high inflation economies," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 129(3), pages 591-599, September. [Downloadable!] (restricted)
  9. Thornton, John, 1996. "The Adjustment of Nominal Interest Rates in Mexico: A Study of the Fisher Effect," Applied Economics Letters, Taylor and Francis Journals, vol. 3(4), pages 255-57, April. [Downloadable!] (restricted)
  10. Zivot, Eric & Andrews, Donald W K, 1992. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 251-70, July.
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  11. Jesus Clemente & Antonio Montañes & Marcelo Reyes, 2004. "Structural Breaks, Inflation and Interest Rates: Evidence for the G7 countries," Econometrics 0401005, EconWPA. [Downloadable!]
  12. Koustas, Z., Serletis, A., 1998. "On the Fisher Effect," Papers 98-09, Calgary - Department of Economics.
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  13. Payne, James E & Ewing, Bradley T, 1997. "Evidence from Lesser Developed Countries on the Fisher Hypothesis: A Cointegration Analysis," Applied Economics Letters, Taylor and Francis Journals, vol. 4(11), pages 683-87, November. [Downloadable!] (restricted)
  14. Olekalns, Nilss, 1996. "Further Evidence on the Fisher Effect," Applied Economics, Taylor and Francis Journals, vol. 28(7), pages 851-56, July. [Downloadable!] (restricted)
  15. Breitung, Jorg, 2002. "Nonparametric tests for unit roots and cointegration," Journal of Econometrics, Elsevier, vol. 108(2), pages 343-363, June. [Downloadable!] (restricted)
  16. Herman Bierens & Shingyi Guo, 1993. "Testing stationarity and trend stationarity against the unit root hypothesis," Econometric Reviews, Taylor and Francis Journals, vol. 12(1), pages 1-32. [Downloadable!] (restricted)
  17. Bierens, Herman J., 1993. "Higher-order sample autocorrelations and the unit root hypothesis," Journal of Econometrics, Elsevier, vol. 57(1-3), pages 137-160. [Downloadable!] (restricted)
  18. Yuhn, Ky-Hyang, 1996. "Is the Fisher Effect Robust? Further Evidence," Applied Economics Letters, Taylor and Francis Journals, vol. 3(1), pages 41-44, January. [Downloadable!] (restricted)
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