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The Fisher Effect revisited through an efficient non linear unit root testing procedure

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  • Nicolas Million

Abstract

As the Fisher Effect is either rejected or accepted without a real consensus in empirical studies, it is interesting to test for a unit root in a local-to-unity framework. Moreover, given the inflation expectation behaviour before and after 1979, we shall let a shift occur at a significant time break of our sample, so as to deal with potential non stationarity in the real interest rates series, instead of using Markov switching regimes models. The main innovation is to rely on structural breaks in the deterministic part while combining this method with an efficient unit root test. Empirical results reject a stochastic trend for the US short-term real interest rate from 1951 to 2000. This is consistent with an ex ante real rate constant over time.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 10 (2003)
Issue (Month): 15 ()
Pages: 951-954

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Handle: RePEc:taf:apeclt:v:10:y:2003:i:15:p:951-954

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  1. Mishkin, Frederic S., 1981. "The real interest rate: An empirical investigation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 15(1), pages 151-200, January.
  2. Hall, Alastair R, 1994. "Testing for a Unit Root in Time Series with Pretest Data-Based Model Selection," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 461-70, October.
  3. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
  4. Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," NBER Working Papers 6442, National Bureau of Economic Research, Inc.
  5. Garcia, R. & Perron, P., 1990. "An Anlysis Of The Real Interest Rate Under Regime Shifts," Papers 353, Princeton, Department of Economics - Econometric Research Program.
  6. Saikkonen, Pentti & Lütkepohl, Helmut, 1999. "Testing for unit roots in time series with level shifts," SFB 373 Discussion Papers 1999,27, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  7. 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.
  8. repec:wop:humbsf:1999-27 is not listed on IDEAS
  9. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
  10. Perron, P., 1994. "Further Evidence on Breaking Trend Functions in Macroeconomic Variables," Cahiers de recherche 9421, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  11. Peter C.B. Phillips, 1998. "Econometric Analysis of Fisher's Equation," Cowles Foundation Discussion Papers 1180, Cowles Foundation for Research in Economics, Yale University.
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Cited by:
  1. repec:hal:journl:halshs-00119051 is not listed on IDEAS
  2. Narayan, Paresh Kumar & Popp, Stephan, 2011. "An application of a new seasonal unit root test to inflation," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 707-716, October.

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