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The Fisher Hypothesis and Its Implications for Defined Benefits

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  • Leung Andrew P.

    (Monash University, Clayton VIC 3180, Australia)

Abstract

Asset liability management is often employed for managing the risks associated with defined benefits. Liability Driven Investment is a recent phenomenon in financial circles, promising a coherent framework for achieving this aim. It has been focused on managing interest rate risks by appropriate debt strategies. However the formulation of debt strategies needs to take explicit account of one characteristic that affects most liabilities, namely inflation. This factor generates as much risk as interest rates; moreover it is intimately related to them. We examine this issue in depth, and consider the economic relationships between interest rates and inflation. This is conducted in the light of the Fisher Hypothesis. We show that this analysis has significant implications for nominal debt strategies.

Suggested Citation

  • Leung Andrew P., 2015. "The Fisher Hypothesis and Its Implications for Defined Benefits," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 9(1), pages 107-124, January.
    • Handle: RePEc:bpj:apjrin:v:9:y:2015:i:1:p:107-124:n:6
    DOI: 10.1515/apjri-2014-0038
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    References listed on IDEAS

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    1. Jacqueline Dwyer & Kenneth Leong, 2001. "Changes in the Determinants of Inflation in Australia," RBA Research Discussion Papers rdp2001-02, Reserve Bank of Australia.
    2. Gunnar Bårdsen & Stan Hurn & Zoë Mchugh, 2007. "Modelling Wages and Prices in Australia," The Economic Record, The Economic Society of Australia, vol. 83(261), pages 143-158, June.
    3. Frederic S. Mishkin & John Simon, 1995. "An Empirical Examination of the Fisher Effect in Australia," The Economic Record, The Economic Society of Australia, vol. 71(3), pages 217-229, September.
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