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What Fisher knew about his relation, we sometimes forget

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Author Info
Arnwine, Neil
Yigit, Taner M.

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Abstract

Expected consumption growth increases the real interest rate as one tries to smooth consumption over time. We demonstrate that placing it in the Fisher relation 1) is consistent with the Euler equation governing the purchase of nominal bonds, 2) explains observed procyclicality of the real interest rate, 3) is supported empirically, and 4) provides an alternative method for estimating the consumer's degree of relative risk aversion.

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File URL: http://www.sciencedirect.com/science/article/B6V84-4T6M80H-2/2/06a259e5b6f3abbbabbffcef9ead5814
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Publisher Info
Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 101 (2008)
Issue (Month): 3 (December)
Pages: 193-195
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Handle: RePEc:eee:ecolet:v:101:y:2008:i:3:p:193-195

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Web page: http://www.elsevier.com/locate/ecolet

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Keywords: Fisher relation Interest rate Consumption growth;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Ng, Serena & Perron, Pierre, 1997. "Estimation and inference in nearly unbalanced nearly cointegrated systems," Journal of Econometrics, Elsevier, vol. 79(1), pages 53-81, July. [Downloadable!] (restricted)
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  2. VanderHoff, James, 1984. "Evidence on the Varying Effect of Expected Inflation on Interest Rates," The Review of Economics and Statistics, MIT Press, vol. 66(3), pages 477-81, August. [Downloadable!] (restricted)
  3. Pierre-Daniel G. Sarte, 1998. "Fisher's equation and the inflation risk premium in a simple endowment economy," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 53-72. [Downloadable!]
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This page was last updated on 2009-11-7.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.