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Trend breaks and the fisher hypothesis in canada and the United States

  • Frank Atkins
  • Milanda Chan

Using the sequential estimation methodology developed by Banerjee, Lumsdaine and Stock (Journal of Business and Economic Statistics, 10(3), 271-87, 1992), Zivot and Andrews (Journal of Business and Economic Statistics, 10(3), 251-70, 1992) and extended by Lumsdaine and Papell (Review of Economics and Statistics, 79(2), 212-18, 1997), empirical evidence is found consistent with the hypothesis that the 90-day Treasury Bill rate and the inflation rate in Canada and the US are stationary around a deterministic trend with two breaks. When the breaks are filtered out, the data is consistent with partial long-run adjustment of the nominal interest rate to an inflation shock, but not of the size predicted by the Fisher Effect.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 36 (2004)
Issue (Month): 17 ()
Pages: 1907-1913

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Handle: RePEc:taf:applec:v:36:y:2004:i:17:p:1907-1913
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  1. Pesaran, M. Hashem & Shin, Y. & Smith, R.J., 1999. "Bounds Testing Approaches to the Analysis of Long-run Relationships," Cambridge Working Papers in Economics 9907, Faculty of Economics, University of Cambridge.
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  6. Anindya Banerjee & Robin L. Lumsdaine & James H. Stock, 1990. "Recursive and Sequential Tests of the Unit Root and Trend Break Hypothesis: Theory and International Evidence," NBER Working Papers 3510, National Bureau of Economic Research, Inc.
  7. Zivot, Eric & Andrews, Donald W K, 1992. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 251-70, July.
  8. Fisher, Mark E & Seater, John J, 1993. "Long-Run Neutrality and Superneutrality in an ARIMA Framework," American Economic Review, American Economic Association, vol. 83(3), pages 402-15, June.
  9. Robin L. Lumsdaine & David H. Papell, 1997. "Multiple Trend Breaks And The Unit-Root Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 212-218, May.
  10. 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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