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The Fisher effect in the presence of time-varying coefficients

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  • Panopoulou, Ekaterini
  • Pantelidis, Theologos

Abstract

A resolution of the Fisher effect puzzle in terms of statistical inference is attempted. Motivation stems from empirical evidence of time-varying coefficients in the data generating process of both the interest rates and inflation rates for 19 OECD countries. These time-varying dynamics crucially affect the behaviour of all the co-integration estimators considered, especially in small samples. When employing simulated critical values instead of asymptotic ones, the results provide ample evidence supporting the existence of a long-run Fisher effect in which interest rates move one-to-one with inflation rates in all countries under scrutiny except for Ireland and Switzerland.

Suggested Citation

  • Panopoulou, Ekaterini & Pantelidis, Theologos, 2016. "The Fisher effect in the presence of time-varying coefficients," Computational Statistics & Data Analysis, Elsevier, vol. 100(C), pages 495-511.
  • Handle: RePEc:eee:csdana:v:100:y:2016:i:c:p:495-511
    DOI: 10.1016/j.csda.2014.08.015
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