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Evidence of the Fisher Effect from U.K. Indexed Bonds

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  • Woodward, G Thomas

Abstract

Newly available data from the U.K. market for indexed securities are used to test the Fisher hypothesis. For monthly observations of interest rates at 14 maturities, the hypothesis that the after-tax nominal interest rate is a constant plus anticipated inflation proves to be a reasonable approximation of reality. For longer maturities, the coefficients on the expected rate of inflation are approximately equal to one. The Mundell- Tobin effect is in evidence for shorter maturities. The inverted Fisher effect is in evidence for shorter maturities. The inverted Fisher effect is decisively rejected. The evidence suggests that past difficulties encountered in trying to prove the Fisher effect have been due to the lack of a direct measure of inflation expectations and real interest rates. Copyright 1992 by MIT Press.

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  • Woodward, G Thomas, 1992. "Evidence of the Fisher Effect from U.K. Indexed Bonds," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 315-320, May.
    • Handle: RePEc:tpr:restat:v:74:y:1992:i:2:p:315-20
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    Cited by:

    1. Temitope Leshoro & Umakrishnan Kollamparambil, 2016. "Inflation Or Output Targeting? Monetary Policy Appropriateness In South Africa," PSL Quarterly Review, Economia civile, vol. 69(276), pages 77-104.
    2. Eric J. Levin & Robert E. Wright, 1997. "Speculation in the Housing Market?," Urban Studies, Urban Studies Journal Limited, vol. 34(9), pages 1419-1437, August.
    3. Shu‐Chin Lin, 2009. "Inflation And Real Stock Returns Revisited," Economic Inquiry, Western Economic Association International, vol. 47(4), pages 783-795, October.
    4. Yu Hsing, 1997. "The Fisher hypothesis revisited: new evidence," Applied Economics, Taylor & Francis Journals, vol. 29(8), pages 1055-1059.
    5. Rodionova, Alena (Родионова, Алена), 2014. "Formation of long-term rate of return: Fisher effect in the markets of public debt of developing countries [Формирование Долгосрочного Уровня Доходности: Эффект Фишера На Рынках Государственного До," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 116-139.
    6. Caporale, Guglielmo Maria & Gil-Alaña, Luis, 2019. "Testing the Fisher hypothesis in the G-7 countries using I(d) techniques," International Economics, Elsevier, vol. 159(C), pages 140-150.
    7. Somayeh Madadpour & Mohsen Asgari, 2019. "The puzzling relationship between stocks return and inflation: a review article," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 66(2), pages 115-145, June.
    8. Malek Lashgari, 2000. "Information content of U.S. treasury inflation-indexed bonds," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 6(3), pages 520-530, August.
    9. Herbst, Anthony F. & Wu, Joseph S.K., 2008. "Foreign investment with inflation-linked securities: A natural hedge under Fisher theory?," Global Finance Journal, Elsevier, vol. 18(3), pages 416-425.
    10. Takayasu Ito, 2009. "Fisher Hypothesis in Japan: Analysis of Long‐term Interest Rates under Different Monetary Policy Regimes," The World Economy, Wiley Blackwell, vol. 32(7), pages 1019-1035, July.
    11. Radó, Márk, 2003. "Infláció, tőkeköltség és a magyar tulajdonosok versenyhátránya [Inflation, capital costs and the competitive disadvantage of Hungarian owners]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 964-987.
    12. Kam, Eric, 2005. "A note on time preference and the Tobin Effect," Economics Letters, Elsevier, vol. 89(1), pages 127-132, October.

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