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The Relationship between Interest Rates and Inflation: Examining the Fisher Effect in China

Author

Listed:
  • Serdar Ongan

    (Department of Economics, St. Mary's College of Maryland, St. Mary's City, MD 20686-3001, USA)

  • Ismet Gocer

    (Department of Econometrics, Adnan Menderes University, Aydin 09016, Turkey)

Abstract

This study revisits the Fisher effect using a different empirical method that considers a potential nonlinear relationship between interest rates (treasury bond rates) and inflation in China. The rising uncertainty and asymmetric information in financial markets between bond holders and bond issuers suggest such a potential nonlinear relationship. To this aim, we apply Shin et al.’s (2014) nonlinear autoregressive distributed lag (NARDL) model with asymmetric dynamic multipliers for the sample period 2002M7?018M4. The empirical findings reveal symmetric and asymmetric partial Fisher effects for all sample bond rates in China. Furthermore, we find that 20-year bond rates experience the lowest partial Fisher effect.

Suggested Citation

  • Serdar Ongan & Ismet Gocer, 2020. "The Relationship between Interest Rates and Inflation: Examining the Fisher Effect in China," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 15(2), pages 247-256, June.
  • Handle: RePEc:fec:journl:v:15:y:2020:i:2:p:247-256
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-011-020-0011-6
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    Cited by:

    1. Sanyal, Anirban, 2023. "Caught in the Crossfire: How Trade Policy Uncertainty Impacts Global Trade," EconStor Preprints 272825, ZBW - Leibniz Information Centre for Economics.

    More about this item

    Keywords

    Fisher effect; nonlinear autoregressive distributed lag (NARDL) model; asymmetric dynamic multipliers; China; treasury bonds; inflation; interest rates;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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