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Econometric Analysis of Fisher's Equation

Fisher's equation for the determination of the real rate of interest is studied from a fresh econometric perspective. Some new methods of data description for nonstationary time series are introduced. The methods provide a nonparametric mechanism for modelling the spatial densities of a time series that displays random wandering characteristics, like interest rates and inflation. Hazard rate functionals are also constructed, an asymptotic theory is given and the techniques are illustrated in some empirical applications to real interest rates for the US. The paper ends by calculating Gaussian semiparametric estimates of long range dependence in US real interest rates, using a new asymptotic theory that covers the nonstationary case. The empirical results indicate that the real rate of interest in the US is (fractionally) nonstationary over 1934-1997 and over the more recent subperiods 1961-1985 and 1961-1997. Unit root nonstationarity and short memory stationarity are both strongly rejected for all these periods.

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File URL: http://cowles.econ.yale.edu/P/cd/d11b/d1180.pdf
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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1180.

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Length: 38 pages
Date of creation: Jun 1998
Date of revision:
Handle: RePEc:cwl:cwldpp:1180
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Web page: http://cowles.econ.yale.edu/

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Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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  1. Fama, Eugene F, 1975. "Short-Term Interest Rates as Predictors of Inflation," American Economic Review, American Economic Association, vol. 65(3), pages 269-82, June.
  2. René Garcia & Pierre Perron, 1995. "An Analysis of the Real Interest Rate Under Regime Shifts," CIRANO Working Papers 95s-05, CIRANO.
  3. Mishkin, Frederic S., 1992. "Is the Fisher effect for real? : A reexamination of the relationship between inflation and interest rates," Journal of Monetary Economics, Elsevier, vol. 30(2), pages 195-215, November.
  4. Peter C.B. Phillips & Victor Solo, 1989. "Asymptotics for Linear Processes," Cowles Foundation Discussion Papers 932, Cowles Foundation for Research in Economics, Yale University.
  5. Ross Williams, 2013. "Introduction," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 46(4), pages 460-461, December.
  6. Peter C.B. Phillips, 1987. "Multiple Regression with Integrated Time Series," Cowles Foundation Discussion Papers 852, Cowles Foundation for Research in Economics, Yale University.
  7. Alex Maynard & Peter C. B. Phillips, 2001. "Rethinking an old empirical puzzle: econometric evidence on the forward discount anomaly," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(6), pages 671-708.
  8. Peter C.B. Phillips, 1988. "Spectral Regression for Cointegrated Time Series," Cowles Foundation Discussion Papers 872, Cowles Foundation for Research in Economics, Yale University.
  9. Lawrence H. Summers, 1982. "The Nonadjustment of Nominal Interest Rates: A Study of the Fisher Effect," NBER Working Papers 0836, National Bureau of Economic Research, Inc.
  10. Gil-Alana, L. A. & Robinson, P. M., 1997. "Testing of unit root and other nonstationary hypotheses in macroeconomic time series," Journal of Econometrics, Elsevier, vol. 80(2), pages 241-268, October.
  11. Rose, Andrew Kenan, 1988. " Is the Real Interest Rate Stable?," Journal of Finance, American Finance Association, vol. 43(5), pages 1095-1112, December.
  12. Peter C.B. Phillips & Joon Y. Park, 1998. "Nonstationary Density Estimation and Kernel Autoregression," Cowles Foundation Discussion Papers 1181, Cowles Foundation for Research in Economics, Yale University.
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