Estimator Choice and Fisher's Paradox: A Monte Carlo Study
AbstractThis paper argues that Fisher's paradox can be explained away in terms of estimator choice. We analyse by means of Monte Carlo experiments the small sample properties of a large set of estimators (including virtually all available single-equation estimators), and compute the critical values based on the empirical distributions of the t-statistics, for a variety of Data Generation Processes (DGPs), allowing for structural breaks, ARCH effects etc. We show that precisely the estimators most commonly used in the literature, namely OLS, Dynamic OLS (DOLS) and non-prewhitened FMLS, have the worst performance in small samples, and produce rejections of the Fisher hypothesis. If one employs the estimators with the most desirable properties (i.e., the smallest downward bias and the minimum shift in the distribution of the associated t-statistics), or if one uses the empirical critical values, the evidence based on US data is strongly supportive of the Fisher relation, consistently with many theoretical models.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Econometric Reviews.
Volume (Year): 23 (2004)
Issue (Month): 1 ()
Contact details of provider:
Web page: http://www.tandfonline.com/LECR20
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Ang, James B., 2011. "Finance and consumption volatility: Evidence from India," Journal of International Money and Finance, Elsevier, vol. 30(6), pages 947-964, October.
- Ang, James B., 2010. "Research, technological change and financial liberalization in South Korea," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 457-468, March.
- Westerlund, Joakim, 2006.
"Panel Cointegration Tests of the Fisher Effect,"
054, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
- Ang, James, 2009. "Financial Liberalization Or Repression?," MPRA Paper 14497, University Library of Munich, Germany.
- Tang, Chor Foon, 2010. "Revisiting the health-income nexus in Malaysia: ARDL cointegration and Rao's F-test for causality," MPRA Paper 27287, University Library of Munich, Germany.
- Thorbecke, Willem, 2008. "Global imbalances, triangular trading patterns, and the yen/dollar exchange rate," Journal of the Japanese and International Economies, Elsevier, vol. 22(4), pages 503-517, December.
- Ang, James, 2009. "The Saving-Investment Dynamics And Financial Sector Reforms in India," MPRA Paper 14498, University Library of Munich, Germany.
- Ang, James, 2009. "Growth Volatility and Financial Repression: Time Series Evidence from India," MPRA Paper 14412, University Library of Munich, Germany.
- Ekaterini Panopoulou, 2005.
"A Resolution of the Fisher Effect Puzzle: A Comparison of Estimators,"
Money Macro and Finance (MMF) Research Group Conference 2005
18, Money Macro and Finance Research Group.
- Ekaterini Panopoulou, 2005. "A Resolution of the Fisher Effect Puzzle: A Comparison of Estimators," The Institute for International Integration Studies Discussion Paper Series iiisdp067, IIIS.
- E.Panopoulou, 2005. "A Resolution of the Fisher Effect Puzzle: A Comparison of Estimators," Economics, Finance and Accounting Department Working Paper Series n1500205, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
- Westerlund, Joakim, 2005. "Panel Cointegration Tests of the Fisher Hypothesis," Working Papers 2005:10, Lund University, Department of Economics.
- Arnwine, Neil & Yigit, Taner M., 2008.
"What Fisher knew about his relation, we sometimes forget,"
Elsevier, vol. 101(3), pages 193-195, December.
- Taner Yigit & Neil Arnwine, 2007. "What Fisher Knew About His Relation, We Sometimes Forget," Departmental Working Papers 0707, Bilkent University, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.