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Structural Breaks and the Fisher Effect

Listed author(s):
  • Haug Alfred A

    ()

    (University of Otago)

  • Beyer Andreas

    ()

    (European Central Bank)

  • Dewald William

    ()

    (Ohio State University)

There is scant empirical support in the literature for the Fisher effect in the long run, though it is often assumed in theoretical models. We argue that a break in the cointegrating relation introduces a spurious unit root that leads to a rejection of cointegration. We applied new break tests and tested for nonlinearity in the cointegrating relation with post World War II data for 15 countries. Our empirical results support cointegration, after accounting for breaks, and a linear Fisher relation in the long run. This is in contrast to several recent studies that found no support for linear cointegration.

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Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 11 (2011)
Issue (Month): 1 (May)
Pages: 1-31

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Handle: RePEc:bpj:bejmac:v:11:y:2011:i:1:n:9
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