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Testing the Fisher Effect in the Presence of Structural Change: A Case Study of the UK,1961-2001

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Abstract

In this paper we provide an empirical test of the Fisher effect using cointegration techniques, where the existence of instabilities in the cointegrating or long-run relationships is explicitly tested. The analysis was applied to the UK, a country that has been subject to potentially stronger regime shifts than other countries over the last years, for the period 1961-2001. To this end, we apply some recent econometric techniques aimed to detect eventual structural changes, allowing the instability to occur at a unknown date. We supply a broad battery of tests in order to illustrate recent developments in the field, which might also be useful to applied econometricians.

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  • Oscar Bajo-Rubio & Carmen Díaz-Roldán & Vicente Esteve, 2003. "Testing the Fisher Effect in the Presence of Structural Change: A Case Study of the UK,1961-2001," Economic Working Papers at Centro de Estudios Andaluces E2003_22, Centro de Estudios Andaluces.
    • Handle: RePEc:cea:doctra:e2003_22
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    Cited by:

    1. R. Santos Alimi, 2014. "ARDL Bounds Testing Approach to Cointegration: A Re-Examination of Augmented Fisher Hypothesis in an Open Economy," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 2(2), pages 103-114, June.
    2. Ismet Gocer & Serdar Ongan, 2020. "The Relationship between Inflation and Interest Rates in the UK: The Nonlinear ARDL Approach," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(3), pages 77-86.
    3. Peter Kehinde, Mogaji, 2010. "Fisher Effect and the Relationship between Nominal Interest Rates and Inflation: The Case of Nigeria," MPRA Paper 98760, University Library of Munich, Germany.
    4. Muse, Bernard & Alimi, R. Santos, 2012. "Testing an Augmented Fisher Hypothesis for a Small Open Economy: The Case of Nigeria," MPRA Paper 44987, University Library of Munich, Germany.
    5. Awomuse, Bernard O. & Alimi, Santos R., 2012. "The Relationship between Nominal Interest Rates and Inflation: New Evidence and Implication for Nigeria," MPRA Paper 49684, University Library of Munich, Germany.
    6. H.a. Mitchell‐innes & M.j. Aziakpono & A.p. Faure, 2007. "Inflation Targeting And The Fisher Effect In South Africa: An Empirical Investigation," South African Journal of Economics, Economic Society of South Africa, vol. 75(4), pages 693-707, December.

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    More about this item

    Keywords

    Interest rate; Fisher effect; Structural breaks; Cointegration.;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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