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Rational expectations and the Fisher effect: implications of monetary regime shifts

Author

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  • Michael M. Hutchison
  • Michael C. Keeley

Abstract

This paper develops a simple rational expectations model of the inflation process that is used to test the Fisher effect. The model emphasizes the link between money and expected inflation, and hence the monetary regime followed by the central bank. The model is estimated with U.S. data over the 1953-1986 period. We find that instability in the observed Fisher effect is associated with monetary regime shifts, and that the forecastability of money under different money regimes is an important determinant of the extent to which the Fisher effect is statistically observable.

Suggested Citation

  • Michael M. Hutchison & Michael C. Keeley, 1986. "Rational expectations and the Fisher effect: implications of monetary regime shifts," Working Papers in Applied Economic Theory 86-11, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfap:86-11
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    Cited by:

    1. Harm Bandholz & Jorg Clostermann & Franz Seitz, 2009. "Explaining the US bond yield conundrum," Applied Financial Economics, Taylor & Francis Journals, vol. 19(7), pages 539-550.
    2. Clostermann, Jörg & Seitz, Franz, 2005. "Are bond markets really overpriced: The case of the US," Arbeitsberichte – Working Papers 11, Technische Hochschule Ingolstadt (THI).

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