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On The Fisher Effect And Inflation Dynamics In Low-Income Countries: An Assessment Of Sub-Saharan Africa Economies

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  • NANDWA, Boaz

Abstract

Controlling for structural breaks, this study examines whether the relationship between the interest rate and inflation exhibits common stochastic trends in a sample of Sub-Saharan Africa (SSA) economies. The results indicate that while the Fisher effect does not hold for the entire sample period, 1980:I-2005:II nor in pre-economic reforms period, this relationship holds for the post-economic reforms (deregulated financial markets and exchange rate float regime) period, 1995:I-2005:II. Further, from the vector error-correction model (VECM), we find a less than proportionate response of short-term adjustment of the nominal interest rate to expected inflation. This implies that, compared to the long-term, in the short-term the nominal interest rate are poor predictors of inflation and the monetary policy in these countries is unlikely to impact on ex ante real interest rates in the long-term.

Suggested Citation

  • NANDWA, Boaz, 2006. "On The Fisher Effect And Inflation Dynamics In Low-Income Countries: An Assessment Of Sub-Saharan Africa Economies," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(1).
  • Handle: RePEc:eaa:aeinde:v:6:y:2006:i:1_13
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    References listed on IDEAS

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    Cited by:

    1. Guglielmo Maria Caporale & Luis Alberiko Gil-Alaña, 2011. "Interest rate dynamics in Kenya," NCID Working Papers 10/2011, Navarra Center for International Development, University of Navarra.

    More about this item

    Keywords

    Monetary policy; the Fisher effect and Sub-Saharan Africa;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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