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The Fisher effect: a Kalman filter approach to detecting structural change

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  • Abdulnasser Hatemi-J
  • Manuchehr Irandoust

Abstract

This article uses quarterly data on short-run nominal interest rates and inflation rates over the last four or three decades collected from Australia, Japan, Malaysia and Singapore to test whether the Fisher relation has empirical support. Since meaningful Fisher effect tests critically depend on the integration and cointegration properties of the variables, we present some empirical evidence on these issues and we also apply the Kalman filter to estimate the time-varying parameters. The results show that the data are generally rejecting a full Fisher effect. This implies that nominal interest rates do not respond point-for-point to changes in the expected inflation rates. The possible reasons for the inability to detect a full Fisher effect are also discussed.

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Bibliographic Info

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

Volume (Year): 15 (2008)
Issue (Month): 8 ()
Pages: 619-624

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Handle: RePEc:taf:apeclt:v:15:y:2008:i:8:p:619-624

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Cited by:
  1. Yuki Toyoshima & Shigeyuki Hamori, 2011. "Panel cointegration analysis of the Fisher effect: Evidence from the US, the UK, and Japan," Economics Bulletin, AccessEcon, vol. 31(3), pages 2674-2682.
  2. Taha Bahadir Sarac & OkYAY Ucan, 2013. "The Interest Rate Channel in Turkey: An Investigation with Kalman Filter Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 3(4), pages 874 - 884.

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