Fisher Hypothesis Revisited: A Fractional Cointegration Analysis
AbstractThis paper investigates the validity of the Fisher hypothesis using data from 33 developed and developing countries. Conventional cointegration tests do not provide strong evidence on the relationship between nominal interest rates and inflation. Therefore, we use fractional cointegration analysis to test the long-run relationship between the two variables. The results indicate that the long-run relationship between nominal interest rates and inflation do not exist for most countries in the sample when conventional cointegration test is employed. However, fractional cointegration between the two variables is found for a large majority of countries, implying the validity of the Fisher hypothesis. The results also indicate that the equilibrium errors display long memory.
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Bibliographic InfoPaper provided by Dokuz Eylül University, Faculty of Business, Department of Economics in its series Discussion Paper Series with number 05/04.
Length: 27 pages
Date of creation: 23 Nov 2005
Date of revision: 23 Nov 2005
Publication status: Forthcoming in Emerging Markets Trade and Finance
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Web page: http://www.deu.edu.tr/DEUWeb/Icerik/Icerik.php?KOD=442
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Fisher hypothesis; interest rates; fractional cointegration; long memory;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-07-21 (All new papers)
- NEP-ETS-2006-07-21 (Econometric Time Series)
- NEP-IFN-2006-07-21 (International Finance)
- NEP-MAC-2006-07-21 (Macroeconomics)
- NEP-MON-2006-07-21 (Monetary Economics)
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