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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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  • Maghyereh, A.
  • Al-Zoubi, H.

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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Bibliographic Info

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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  1. Koustas, Zisimos & Serletis, Apostolos, 1999. "On the Fisher effect," Journal of Monetary Economics, Elsevier, vol. 44(1), pages 105-130, August.
  2. Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
  3. Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
  4. Garcia, Marcio G. P., 1993. "The Fisher effect in a signal extraction framework The recent Brazilian experience," Journal of Development Economics, Elsevier, vol. 41(1), pages 71-93, June.
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  7. Wensheng Peng, 1995. "The Fisher Hypothesis and Inflation Persistence," IMF Working Papers 95/118, International Monetary Fund.
  8. Peter C.B. Phillips & Pierre Perron, 1986. "Testing for a Unit Root in Time Series Regression," Cowles Foundation Discussion Papers 795R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1987.
  9. Jesus Clemente & Antonio MontaƱes & Marcelo Reyes, 2004. "Structural Breaks, Inflation and Interest Rates: Evidence for the G7 countries," Econometrics 0401005, EconWPA.
  10. John Thornton, 1996. "The adjustment of nominal interest rates in Mexico: a study of the Fisher effect," Applied Economics Letters, Taylor & Francis Journals, vol. 3(4), pages 255-257.
  11. 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.
  12. 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.
  13. Bierens, H.J., 1996. "Nonparametric Nonlinear Cotrending Analysis, with an Application to Interest and Inflation in the U.S," Discussion Paper 1996-62, Tilburg University, Center for Economic Research.
  14. Breitung, Jorg, 2002. "Nonparametric tests for unit roots and cointegration," Journal of Econometrics, Elsevier, vol. 108(2), pages 343-363, June.
  15. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  16. Ky-Hyang Yuhn, 1996. "Is the Fisher effect robust? Further evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 3(1), pages 41-44.
  17. 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.
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