Is it really the Fisher effect?
Many researchers have used a cointegration approach to test for the Fisher effect. This note argues that the cointegration of the nominal interest rate and the inflation rate is consistent with any theory implying a stationary ex post real interest rate and so is not a sufficient condition for the Fisher effect to hold. The sufficient condition is the unpredictability of the inflation forecast error implied by the nominal interest rate and this condition may be tested using the signal extraction framework of Durlauf and Hall (1988, 1989).
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Volume (Year): 13 (2006)
Issue (Month): 4 ()
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References listed on IDEAS
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- Fahmy, Yasser A. F. & Kandil, Magda, 2003. "The Fisher effect: new evidence and implications," International Review of Economics & Finance, Elsevier, vol. 12(4), pages 451-465.
- William J. Crowder, 1997. "The Long-Run Fisher Relation in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 1124-42, November.
- John Huizinga & Frederic S. Mishkin, 1985.
"Monetary Policy Regime Shifts and the Unusual Behavior of Real Interest Rates,"
NBER Working Papers
1678, National Bureau of Economic Research, Inc.
- Huizinga, John & Mishkin, Frederic S., 1986. "Monetary policy regime shifts and the unusual behavior of real interest rates," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 24(1), pages 231-274, January.
- Carl Bonham, 1990.
"Correct Cointegration Tests of the Long Run Relationship Between Nominal Interest and Inflation,"
199026, University of Hawaii at Manoa, Department of Economics.
- Carl Bonham, 1991. "Correct Cointegration Tests of the Long Run Relationship Between Nominal Interest and Inflation," Working Papers 199104, University of Hawaii at Manoa, Department of Economics.
- Crowder, William J & Hoffman, Dennis L, 1996. "The Long-Run Relationship between Nominal Interest Rates and Inflation: The Fisher Equation Revisited," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(1), pages 102-18, February.
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