Is it Really the Fisher Effect?
AbstractFahmy and Kandil  use a cointegration approach to test for the Fisher effect in US interest rates during the 1980s and early 1990s. Here, I argue that even if nominal interest rates and inflation rates do obey integrated processes, cointegration of these two processes is not a sufficient condition for the Fisher effect to hold as it is consistent with any theory implying a stationary real interest rate. As the Fisher effect ex post implies that nominal interest rates embody an optimal inflation forecast, the sufficient condition for it to hold is the unpredictability of the implied inflation forecast error. This condition may be tested using the signal extraction framework of Durlauf and Hall [1988, 1989].
Download InfoIf 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.
Bibliographic InfoPaper provided by Vassar College Department of Economics in its series Vassar College Department of Economics Working Paper Series with number 58.
Date of creation: Jan 2004
Date of revision:
Contact details of provider:
Postal: Maildrop 708, 124 Raymond Avenue, Poughkeepsie NY 12604-0708
Web page: http://irving.vassar.edu/VCEWP/VCEWP.htm
More information through EDIRC
Other versions of this item:
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.:
- William J. Crowder, 1997. "The Long-Run Fisher Relation in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 1124-42, November.
- Fahmy, Yasser A. F. & Kandil, Magda, 2003. "The Fisher effect: new evidence and implications," International Review of Economics & Finance, Elsevier, vol. 12(4), pages 451-465.
- Carl Bonham, 1990.
"Correct Cointegration Tests of the Long Run Relationship Between Nominal Interest and Inflation,"
199026, University of Hawaii at Manoa, Department of Economics.
- 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.
- John Huizinga & Frederic S. Mishkin, 1986.
"Monetary Policy Regime Shifts and the Unusual Behavior of Real Interest Rates,"
NBER Working Papers
1678, National Bureau of Economic Research, Inc.
- Huizinga, John & Mishkin, Frederic S., 1986. "Monetary policy regime shifts and the unusual behavior of real interest rates," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 24(1), pages 231-274, January.
- Crowder, William J & Hoffman, Dennis L, 1996. "The Long-Run Relationship between Nominal Interest Rates and Inflation: The Fisher Equation Revisited," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(1), pages 102-18, February.
- Muse, Bernard & Alimi, R. Santos, 2012. "Testing an Augmented Fisher Hypothesis for a Small Open Economy: The Case of Nigeria," MPRA Paper 44987, University Library of Munich, Germany.
- Awomuse, Bernard O. & Alimi, Santos R., 2012. "The Relationship between Nominal Interest Rates and Inflation: New Evidence and Implication for Nigeria," MPRA Paper 49684, University Library of Munich, Germany.
- Ling, Tai-Hu & Liew, Venus Khim-Sen & Syed Khalid Wafa, Syed Azizi Wafa, 2007. "Fisher hypothesis: East Asian evidence from panel unit root tests," MPRA Paper 5432, University Library of Munich, Germany.
- Ling, Tai-Hu & Venus, Khim-Sen Liew & Syed Khalid Wafa, Syed Azizi Wafa, 2008. "Does Fisher hypothesis hold for the East Asian Economies? an application of panel unit root tests," MPRA Paper 21601, University Library of Munich, Germany, revised Jan 2010.
- Lyócsa, Štefan & Výrost, Tomáš & Baumöhl, Eduard, 2011. "Unit-root and stationarity testing with empirical application on industrial production of CEE-4 countries," MPRA Paper 29648, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sean Flynn) The email address of this maintainer does not seem to be valid anymore. Please ask Sean Flynn to update the entry or send us the correct address.
If references are entirely missing, you can add them using this form.