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Revisiting the Fisher Hypothesis for Several Selected Developing Economies: a Quantile Cointegration Approach

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  • C C Tsong
  • A Hachicha

Abstract

This paper reinvestigates the validity of the Fisher hypothesis, for several selected developing countries. With the quantile cointegration method proposed by Xiao (2009), we find that the long-run coefficients between nominal interest rates and inflation can be affected by the shocks and, therefore, may vary over time. More specifically, in the upper quantiles there is one-to-one relationship between the two variables, supporting the Fisher effect, while in the lower quantiles, the nominal interest rate responds by a lower percentage than the change in inflation. This is known as the Fisher effect puzzle. Thus the Engle-Granger cointegration regression may suffer from model misspecification, because of the assumption of a constant cointegrating vector. A possible explanation for such an asymmetric relationship between the two variables is provided.

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  • C C Tsong & A Hachicha, 2014. "Revisiting the Fisher Hypothesis for Several Selected Developing Economies: a Quantile Cointegration Approach," Economic Issues Journal Articles, Economic Issues, vol. 19(1), pages 57-72, March.
    • Handle: RePEc:eis:articl:114tsong
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    2. Basse, Tobias & Wegener, Christoph, 2022. "Inflation expectations: Australian consumer survey data versus the bond market," Journal of Economic Behavior & Organization, Elsevier, vol. 203(C), pages 416-430.
    3. Paulo M.M. Rodrigues & Rita Fradique Lourenço, 2015. "House prices: bubbles, exuberance or something else? Evidence from euro area countries," Working Papers w201517, Banco de Portugal, Economics and Research Department.
    4. Muhammed TIRAŞOĞLU, 2018. "Fisher Hipotezinin MINT Ülkeleri İçin İncelenmesi: Eşik Değerli Adl Eşbütünleşme Testi Yaklaşımı," EKOIST Journal of Econometrics and Statistics, Istanbul University, Faculty of Economics, vol. 14(28), pages 31-43, December.

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