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Structural Breaks, Inflation and Interest Rates: Evidence for the G7 countries

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Author Info

  • Jesus Clemente

    (U. Zaragoza)

  • Antonio Montañes

    (U. Zaragoza)

  • Marcelo Reyes

    (U. Zaragoza)

Abstract

This paper challenges the commonly used unit root/cointegration approach for testing the Fisher effect for the economies of the G7 countries. We first prove that nominal interest and inflation rate can be better represented as being broken trend stationary variables. Later, we use the Bai-Perron procedure to show the existence of structural changes in the Fisher equation. When these characteristics are taken into account the Fisher hypothesis we can only offer evidence in favor of this hypothesis for the US, the French and the Japanese economies.

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File URL: http://128.118.178.162/eps/em/papers/0401/0401005.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Econometrics with number 0401005.

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Length: 30 pages
Date of creation: 15 Jan 2004
Date of revision:
Handle: RePEc:wpa:wuwpem:0401005

Note: Type of Document - pdf; prepared on win98; pages: 30
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Web page: http://128.118.178.162

Related research

Keywords: Unit Roots; Structural Breaks; Interest rates; Inflation; \ Fisher Effect;

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Cited by:
  1. Maghyereh, A. & Al-Zoubi, H., 2006. "Does Fisher Effect Apply in Developing Countries: Evidence From a Nonlinear Cotrending Test applied to Argentina, Brazil, Malysia, Mexico, Korea and Turkey," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(2).

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