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The Fisher Equation: A Nonlinear Panel Data Approach

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  • Dong-Hyeon Kim
  • Shu-Chin Lin
  • Joyce Hsieh
  • Yu-Bo Suen

Abstract

This article reinvestigates the Fisher equation. Using the panel smooth transition regression (PSTR) model, it was found that there is a significant regime-switching effect concerning the impact of inflation on interest rates. Specifically, inflation is found to raise the interest rates and the effect becomes stronger in magnitude with inflation. However, the data do not provide evidence in support of the one-for-one Fisher effect. The evidence is robust to interest rates with different maturities and subsamples.

Suggested Citation

  • Dong-Hyeon Kim & Shu-Chin Lin & Joyce Hsieh & Yu-Bo Suen, 2018. "The Fisher Equation: A Nonlinear Panel Data Approach," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(1), pages 162-180, January.
  • Handle: RePEc:mes:emfitr:v:54:y:2018:i:1:p:162-180
    DOI: 10.1080/1540496X.2016.1245138
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