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Quantile cointegration analysis of the Fisher hypothesis

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  • Tsong, Ching-Chuan
  • Lee, Cheng-Feng

Abstract

This paper intends to provide possible explanations for the empirical failure of the Fisher hypothesis in terms of economic shocks by employing the quantile cointegration methodology recently proposed by Xiao (2009). Our empirical results for six OECD countries suggest that though the nominal interest rate and inflation move together in the long run, the cointegrating coefficients between the two variables display an asymmetric pattern depending on the sign and size of the shocks, in sharp contrast to the counterparts with the conventional cointegration methods. In details, in the lower quantiles, the nominal rate is low, and would rise less proportionally than the inflation, leading to the so-called Fisher effect puzzle; by contrast, in the upper quantiles where the level of the nominal rate is high, the former would adjust on a one-to-one basis to changes in the latter, and therefore, support the Fisher hypothesis. Asymmetric monetary policies may be responsible for the findings. Finally, a further checking shows that our findings are robust to the changes of econometric modeling and data frequency.

Suggested Citation

  • Tsong, Ching-Chuan & Lee, Cheng-Feng, 2013. "Quantile cointegration analysis of the Fisher hypothesis," Journal of Macroeconomics, Elsevier, vol. 35(C), pages 186-198.
  • Handle: RePEc:eee:jmacro:v:35:y:2013:i:c:p:186-198
    DOI: 10.1016/j.jmacro.2012.11.001
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Cho, Jin Seo & Kim, Tae-hwan & Shin, Yongcheol, 2015. "Quantile cointegration in the autoregressive distributed-lag modeling framework," Journal of Econometrics, Elsevier, vol. 188(1), pages 281-300.
    2. Bosupeng, Mpho, 2016. "The Effects of Chinese Interest Rates and Inflation: A Decomposition of The Fisher Effect," MPRA Paper 78160, University Library of Munich, Germany, revised 2016.
    3. repec:bpj:sndecm:v:21:y:2017:i:3:p:28:n:1 is not listed on IDEAS
    4. repec:eee:reveco:v:49:y:2017:i:c:p:211-222 is not listed on IDEAS
    5. Bosupeng, Mpho, 2015. "The Fisher Effect Using Differences in The Deterministic Term," MPRA Paper 77921, University Library of Munich, Germany, revised 2015.
    6. Arnold, Stephan & Auer, Benjamin R., 2015. "What do scientists know about inflation hedging?," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 187-214.
    7. Bosupeng, Mpho & Biza-Khupe, Simangaliso, 2015. "The Impact of Money Supply Volatility on the Fisher Effect –A Botswana Empirical Perspective," MPRA Paper 77920, University Library of Munich, Germany, revised 2015.
    8. Kruse Robinson & Ventosa-Santaulària Daniel & Noriega Antonio E., 2017. "Changes in persistence, spurious regressions and the Fisher hypothesis," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 21(3), pages 1-28, June.
    9. Paulo M.M. Rodrigues & Rita Fradique Lourenço, 2015. "House prices: bubbles, exuberance or something else? Evidence from euro area countries," Working Papers w201517, Banco de Portugal, Economics and Research Department.
    10. Zhu, Huiming & Peng, Cheng & You, Wanhai, 2016. "Quantile behaviour of cointegration between silver and gold prices," Finance Research Letters, Elsevier, vol. 19(C), pages 119-125.
    11. Bosupeng, Mpho, 2016. "On The Fisher Effect: A Review," MPRA Paper 77916, University Library of Munich, Germany, revised 2016.

    More about this item

    Keywords

    Fisher hypothesis; Quantile cointegration regression;

    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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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