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Fractional cointegration between nominal interest rates and inflation: A re-examination of the Fisher relationship in the G7 countries

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  • Valerie Mignon

    ()
    (University of Paris X - Nanterre - THEMA)

  • Sandrine Lardic

    ()
    (University of Paris X - Nanterre - MODEM)

Abstract

According to the Fisher hypothesis, the nominal interest rate is equal to the real interest rate, plus expected inflation. Results concerning the empirical validity of this hypothesis are not unanimous. These contradictions may be due to the fact that the usual concept of cointegration is too restrictive. We thus propose here to refer to the concept of fractional cointegration introduced by Granger (1986). We study the Fisher hypothesis by testing for the existence of a fractional cointegration relationship between nominal interest rates and inflation. Our results suggest that, for a large majority of G7 countries, such a relationship exists.

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File URL: http://www.accessecon.com/pubs/EB/2003/Volume3/EB-03C20002A.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 3 (2003)
Issue (Month): 14 ()
Pages: 1-10

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Handle: RePEc:ebl:ecbull:eb-03c20002

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Cited by:
  1. Burcu Kiran, 2013. "A fractional cointegration analysis of Fisher hypothesis: evidence from Turkey," Quality & Quantity: International Journal of Methodology, Springer, vol. 47(2), pages 1077-1084, February.
  2. Saadet Kirbas Kasman & Adnan Kasman & Evrim Turgutlu, 2005. "Fisher Hypothesis Revisited: A Fractional Cointegration Analysis," Discussion Paper Series 05/04, Dokuz Eylül University, Faculty of Business, Department of Economics, revised 23 Nov 2005.

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