Inflation Uncertainty and Interest Rates : Is The Fisher Relation Universal?
AbstractThis paper tests the validity of the Fisher hypothesis, which establishes a positive relation between interest rates and expected inflation, for the G7 countries and 45 developing economies. For this purpose, we estimate a version of the GARCH specification of the hypothesis for all countries included in the sample. We also test the augmented Fisher relation by including the inflation uncertainty in the equation. The simple Fisher relation holds in all G7 countries but in only 23 developing countries. There is a positive and statistically significant relationship between interest rates and inflation uncertainty for six of the G7 and 18 of the developing countries and this relationship is negative for seven developing countries.
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Bibliographic InfoPaper provided by Bilkent University, Department of Economics in its series Departmental Working Papers with number 0607.
Date of creation: 2006
Date of revision:
Other versions of this item:
- Hakan Berument & Nildag Basak Ceylan & Hasan Olgun, 2007. "Inflation uncertainty and interest rates: is the Fisher relation universal?," Applied Economics, Taylor & Francis Journals, vol. 39(1), pages 53-68.
- NEP-ALL-2006-05-13 (All new papers)
- NEP-CBA-2006-05-13 (Central Banking)
- NEP-MAC-2006-05-13 (Macroeconomics)
- NEP-MON-2006-05-13 (Monetary Economics)
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