A VARMA Test on the Gibson Paradox
AbstractWe applied the VARMA test to examine the dynamic relation between prices and interest rates. The dynamic relation, which is important to characterize the nature of the Gibson paradox, provides economists new insight in discriminating against competing theories. In light of our empirical findings, all theories in the literature lose their persuasiveness. We found some evidence of unidirectional relation from prices to interest rates, but we found no evidence of unidirectional relation from interest rates to prices. Hence, the business cycle explanations advanced by Wicksell (1907), Keynes (1930), Lee and Petruzzi (1986), and Barsky and Summers (1988) are especially in jeopardy. A century and a half after its birth, this paradox is more puzzling than ever. Copyright 1990 by MIT Press.
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Bibliographic InfoArticle provided by MIT Press in its journal Review of Economics & Statistics.
Volume (Year): 72 (1990)
Issue (Month): 1 (February)
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- F. Barran & V. Coudert & B. Mojon, 1997.
"Interest rates, banking spreads and credit supply: the real effects,"
The European Journal of Finance,
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- Cheng, Hao & Kesselring, Randall G. & Brown, Christopher R., 2013. "The Gibson paradox: Evidence from China," China Economic Review, Elsevier, vol. 27(C), pages 82-93.
- Coulombe, Serge, 1998. "A Non-Paradoxical Interpretation of the Gibson Paradox," Working Papers 98-22, Bank of Canada.
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