Advanced Search
MyIDEAS: Login

Panel Cointegration Tests of the Fisher Effect

Contents:

Author Info

  • Westerlund, Joakim

    (METEOR)

Registered author(s):

    Abstract

    Most empirical evidence suggest that the Fisher effect, stating that inflation and nominal interest rates should cointegrate with a unit slope on inflation, does not hold, a finding at odds with many theoretical models. This paper argues that these results can be attributed in part to the low power of univariate tests, and that the use of panel data can generate more powerful tests. For this purpose, we propose two new panel cointegration tests that can be applied under very general conditions, and that are shown by simulation to be more powerful than other existing tests. These tests are applied to a panel of quarterly data covering 20 OECD countries between 1980 and 2004. The evidence suggest that the Fisher effect cannot be rejected once the panel evidence on cointegration has been taken into account.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://edocs.ub.unimaas.nl/loader/file.asp?id=1211
    Download Restriction: no

    Bibliographic Info

    Paper provided by Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) in its series Research Memorandum with number 054.

    as in new window
    Length:
    Date of creation: 2006
    Date of revision:
    Handle: RePEc:unm:umamet:2006054

    Contact details of provider:
    Postal: P.O. Box 616, 6200 MD Maastricht
    Phone: +31 (0)43 38 83 830
    Email:
    Web page: http://www.maastrichtuniversity.nl/
    More information through EDIRC

    Related research

    Keywords: econometrics;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Evans, Martin D D & Lewis, Karen K, 1995. " Do Expected Shifts in Inflation Affect Estimates of the Long-Run Fisher Relation?," Journal of Finance, American Finance Association, vol. 50(1), pages 225-53, March.
    2. Joakim Westerlund, 2005. "New Simple Tests for Panel Cointegration," Econometric Reviews, Taylor & Francis Journals, vol. 24(3), pages 297-316.
    3. Banerjee, Anindya & Carrion-i-Silvestre, Josep Lluís, 2006. "Cointegration in panel data with breaks and cross-section dependence," Working Paper Series 0591, European Central Bank.
    4. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(03), pages 597-625, June.
    5. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    6. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know About Unit Roots," NBER Technical Working Papers 0100, National Bureau of Economic Research, Inc.
    7. Carl Bonham, 1991. "Correct Cointegration Tests of the Long Run Relationship Between Nominal Interest and Inflation," Working Papers 199104, University of Hawaii at Manoa, Department of Economics.
    8. A Garratt & K Lee & M Pesaran & Yongcheol Shin, 2004. "A long run structural macroeconometric model of the UK," ESE Discussion Papers 35, Edinburgh School of Economics, University of Edinburgh.
    9. Ng, Serena & Perron, Pierre, 1997. "Estimation and inference in nearly unbalanced nearly cointegrated systems," Journal of Econometrics, Elsevier, vol. 79(1), pages 53-81, July.
    10. Rose, Andrew Kenan, 1988. " Is the Real Interest Rate Stable?," Journal of Finance, American Finance Association, vol. 43(5), pages 1095-1112, December.
    11. Chang, Yoosoon & Park, Joon & Song, Kevin, 2002. "Bootstrapping Cointegrating Regressions," Working Papers 2002-04, Rice University, Department of Economics.
    12. Frank J. Atkins & Apostolos Serletis, 2003. "Bounds Tests of the Gibson Paradox and the Fisher Effect: Evidence from Low-Frequency International Data," Manchester School, University of Manchester, vol. 71(6), pages 673-679, December.
    13. Choi, In, 1994. "Durbin-Hausman tests for cointegration," Journal of Economic Dynamics and Control, Elsevier, vol. 18(2), pages 467-480, March.
    14. Peter Pedroni, 2000. "Fully Modified OLS for Heterogeneous Cointegrated Panels," Department of Economics Working Papers 2000-03, Department of Economics, Williams College.
    15. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
    16. Robert G. King & Mark W. Watson, 1997. "Testing long-run neutrality," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 69-101.
    17. Noor Ghazali & Shamshubariah Ramlee, 2003. "A long memory test of the long-run Fisher effect in the G7 countries," Applied Financial Economics, Taylor & Francis Journals, vol. 13(10), pages 763-769.
    18. Jong Eun Lee, 2002. "On the Characterisation of the World Real Interest Rate," The World Economy, Wiley Blackwell, vol. 25(2), pages 247-255, 02.
    19. Valkanov, Rossen, 2003. "Long-horizon regressions: theoretical results and applications," Journal of Financial Economics, Elsevier, vol. 68(2), pages 201-232, May.
    20. Saikkonen, Pentti, 1991. "Asymptotically Efficient Estimation of Cointegration Regressions," Econometric Theory, Cambridge University Press, vol. 7(01), pages 1-21, March.
    21. Peter C.B. Phillips & Sam Ouliaris, 1987. "Asymptotic Properties of Residual Based Tests for Cointegration," Cowles Foundation Discussion Papers 847R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1988.
    22. Jushan Bai & Serena Ng, 2004. "A PANIC Attack on Unit Roots and Cointegration," Econometrica, Econometric Society, vol. 72(4), pages 1127-1177, 07.
    23. Robert Mundell, 1963. "Inflation and Real Interest," Journal of Political Economy, University of Chicago Press, vol. 71, pages 280.
    24. Westerlund, Joakim & Edgerton , David, 2006. "New Improved Tests for Cointegration with Structural Breaks," Working Papers 2006:3, Lund University, Department of Economics.
    25. Guglielmo Maria Caporale & Nikitas Pittis, 2004. "Estimator Choice and Fisher's Paradox: A Monte Carlo Study," Econometric Reviews, Taylor & Francis Journals, vol. 23(1), pages 25-52.
    26. Hakan Berument & Mohamed Mehdi Jelassi, 2002. "The Fisher hypothesis: a multi-country analysis," Applied Economics, Taylor & Francis Journals, vol. 34(13), pages 1645-1655.
    27. Koustas, Z., Serletis, A., 1998. "On the Fisher Effect," Papers 98-09, Calgary - Department of Economics.
    28. Darby, Michael R, 1975. "The Financial and Tax Effects of Monetary Policy on Interest Rates," Economic Inquiry, Western Economic Association International, vol. 13(2), pages 266-76, June.
    29. Christian Gengenbach & Franz C. Palm & Jean-Pierre Urbain, 2006. "Cointegration Testing in Panels with Common Factors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(s1), pages 683-719, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:unm:umamet:2006054. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Charles Bollen).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.