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Testing the neo-fisherian hypothesis in Brazil

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  • Marques, André M.
  • Carvalho, André R.

Abstract

We investigate the short- and long-run effects of an increase in the nominal interest rate on price inflation during Brazil’s low and stable inflation regime. We estimate the long-run effect using cointegrating regression methods to deal with endogenous regressors and serially correlated errors. Based on monthly inflation and nominal interest rate from 1994 to 2019, the findings support the neo-Fisher effect. The results suggest that price setters might be learning from the Central Bank policy decisions that guide the future movements of the inflation rate. The endogeneity test revealed that the policy rate is weakly exogenous to the inflation rate. We conclude that, in the long run, a rise in the policy rate tends to produce higher inflation rates, as predicted by the neo-Fisher effect.

Suggested Citation

  • Marques, André M. & Carvalho, André R., 2022. "Testing the neo-fisherian hypothesis in Brazil," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 407-419.
    • Handle: RePEc:eee:quaeco:v:86:y:2022:i:c:p:407-419
    DOI: 10.1016/j.qref.2022.08.012
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    More about this item

    Keywords

    Neo-Fisherian hypothesis; Cointegration; FM-OLS; D-OLS; Causality;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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