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The Fisher Effect and the Term Structure of Interest Rates: Tests of Cointegration

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  • Wallace, Myles S
  • Warner, John T

Abstract

The literature on the Fisher effect has ignored the potential relationship between inflation and long-term interest rates. Using an expectations model of the term structure of interest rates, the authors establish the conditions under which innovations in short-term inflation will be transmitted to long-term as well as short-term interest rates. Cointegration tests find support for both the Fisher effect and the expectations theory of the term structure. Copyright 1993 by MIT Press.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics & Statistics.

Volume (Year): 75 (1993)
Issue (Month): 2 (May)
Pages: 320-24

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Handle: RePEc:tpr:restat:v:75:y:1993:i:2:p:320-24

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Web page: http://mitpress.mit.edu/journals/

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Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535

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Cited by:
  1. Aslanidis, Nektarios & Demiralp, Selva, 2013. "How did the Financial Crisis affect the Real Interest Rate Dynamics in Europe?," Working Papers, Universitat Rovira i Virgili, Department of Economics 2072/211885, Universitat Rovira i Virgili, Department of Economics.
  2. Erik Hjalmarsson & Par Osterholm, 2007. "A residual-based cointegration test for near unit root variables," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 907, Board of Governors of the Federal Reserve System (U.S.).
  3. Jens Weidmann, 1997. "New Hope for the Fisher Effect? A Re-Examination Using Threshold Cointegration," Macroeconomics, EconWPA 9705005, EconWPA.
  4. Malliaropulos, Dimitrios, 2000. "A note on nonstationarity, structural breaks, and the Fisher effect," Journal of Banking & Finance, Elsevier, Elsevier, vol. 24(5), pages 695-707, May.
  5. Christopher J. Neely & David E. Rapach, 2008. "Real interest rate persistence: evidence and implications," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Nov, pages 609-642.
  6. Erik Hjalmarsson & Par Osterholm, 2007. "Testing for cointegration using the Johansen methodology when variables are near-integrated," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 915, Board of Governors of the Federal Reserve System (U.S.).
  7. Erik Hjalmarsson & Pär Österholm, 2010. "Testing for cointegration using the Johansen methodology when variables are near-integrated: size distortions and partial remedies," Empirical Economics, Springer, Springer, vol. 39(1), pages 51-76, August.
  8. Fahmy, Yasser A. F. & Kandil, Magda, 2003. "The Fisher effect: new evidence and implications," International Review of Economics & Finance, Elsevier, Elsevier, vol. 12(4), pages 451-465.
  9. A. Arize & J. Malindretos & Z. Obi, 2002. "Long- and short-term interest rates in 19 countries: Tests of cointegration and parameter instability," Atlantic Economic Journal, International Atlantic Economic Society, International Atlantic Economic Society, vol. 30(2), pages 105-120, June.
  10. Muscatelli, Vito Antonio & Spinelli, Franco, 2000. "Fisher, Barro, and the Italian Interest Rate, 1845-93," Journal of Policy Modeling, Elsevier, Elsevier, vol. 22(2), pages 149-169, March.
  11. Beechey, Meredith & Österholm, Pär, 2010. "Forecasting inflation in an inflation-targeting regime: A role for informative steady-state priors," International Journal of Forecasting, Elsevier, Elsevier, vol. 26(2), pages 248-264, April.
  12. Augustine Arize & John Malindretos & Kiseok Nam, 2005. "Inflation and Structural Change in 50 Developing Countries," Atlantic Economic Journal, International Atlantic Economic Society, International Atlantic Economic Society, vol. 33(4), pages 461-471, December.
  13. James R. Rhodes, 2006. "DEVOLUTION OF THE FISHER EQUATION: Rational Appreciation to Money Illusion," GRIPS Discussion Papers, National Graduate Institute for Policy Studies 07-05, National Graduate Institute for Policy Studies, revised Sep 2007.
  14. Chikashi Tsuji, 2005. "Are investors rational in international bond markets?," Applied Financial Economics Letters, Taylor and Francis Journals, Taylor and Francis Journals, vol. 1(3), pages 169-175, May.
  15. Kim, Kenneth A. & Limpaphayom, Piman, 1997. "The effect of economic regimes on the relation between term structure and real activity in Japan," Journal of Economics and Business, Elsevier, Elsevier, vol. 49(4), pages 379-392.
  16. Rapach, David E. & Weber, Christian E., 2004. "Are real interest rates really nonstationary? New evidence from tests with good size and power," Journal of Macroeconomics, Elsevier, Elsevier, vol. 26(3), pages 409-430, September.

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