What Fisher knew about his relation, we sometimes forget
Expected consumption growth increases the real interest rate as one tries to smooth consumption over time. We demonstrate that placing it in the Fisher relation 1) is consistent with the Euler equation governing the purchase of nominal bonds, 2) explains observed procyclicality of the real interest rate, 3) is supported empirically, and 4) provides an alternative method for estimating the consumer's degree of relative risk aversion.
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- Guglielmo Maria Caporale & Nikitas Pittis, 2004. "Estimator Choice and Fisher's Paradox: A Monte Carlo Study," Econometric Reviews, Taylor & Francis Journals, vol. 23(1), pages 25-52.
- Dimitris K. Christopoulos & Miguel A. Leãn-Ledesma, 2007. "A Long-Run Non-Linear Approach to the Fisher Effect," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 543-559, 03.
- Joakim Westerlund, 2008. "Panel cointegration tests of the Fisher effect," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(2), pages 193-233. Full references (including those not matched with items on IDEAS)
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