Changes in Regime and the Long Run Fisher Effect: a Threshold Cointegration Analysis
AbstractThe Fisher equation predicts that nominal interest rates and inflation should move together one-for-one. Recently published work argues that both nominal interest rates and inflation are non-linear. The evidence in this paper suggests that nominal interest rates are well described as two-regime threshold unit root processes. However, inflation and real interest rates appear to be stationary threshold processes. This is consistent with a threshold processes. This is consistent with a threshold cointegrating relationship between nominal interest rates and inflation. The long run Fisher equation describes the relationship between real interest rate inflation in periods of high inflation. In the low inflation regime shocks to real interest rates are highly persistent.
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Bibliographic InfoPaper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 720.
Length: 29 pages
Date of creation: 1999
Date of revision:
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Postal: Department of Economics, The University of Melbourne, 5th Floor, Economics and Commerce Building, Victoria, 3010, Australia
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Web page: http://www.economics.unimelb.edu.au
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INTEREST RATE ; MACROECONOMICS ; ECONOMIC THEORY;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- E00 - Macroeconomics and Monetary Economics - - General - - - General
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- repec:hal:cesptp:halshs-00119051 is not listed on IDEAS
- Nicolas Million, 2006.
"Changements de régime pour la persistance et la dynamique du taux d'intérêt réel américain,"
Cahiers de la Maison des Sciences Economiques
v06067, Université Panthéon-Sorbonne (Paris 1).
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