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Structural Breaks, Inflation and Interest Rates: Evidence for the G7 countries

Author

Listed:
  • Jesus Clemente

    (U. Zaragoza)

  • Antonio Montañes

    (U. Zaragoza)

  • Marcelo Reyes

    (U. Zaragoza)

Abstract

This paper challenges the commonly used unit root/cointegration approach for testing the Fisher effect for the economies of the G7 countries. We first prove that nominal interest and inflation rate can be better represented as being broken trend stationary variables. Later, we use the Bai-Perron procedure to show the existence of structural changes in the Fisher equation. When these characteristics are taken into account the Fisher hypothesis we can only offer evidence in favor of this hypothesis for the US, the French and the Japanese economies.

Suggested Citation

  • Jesus Clemente & Antonio Montañes & Marcelo Reyes, 2004. "Structural Breaks, Inflation and Interest Rates: Evidence for the G7 countries," Econometrics 0401005, EconWPA.
  • Handle: RePEc:wpa:wuwpem:0401005 Note: Type of Document - pdf; prepared on win98; pages: 30
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    References listed on IDEAS

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    Cited by:

    1. Maghyereh, A. & Al-Zoubi, H., 2006. "Does Fisher Effect Apply in Developing Countries: Evidence From a Nonlinear Cotrending Test applied to Argentina, Brazil, Malysia, Mexico, Korea and Turkey," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(2).

    More about this item

    Keywords

    Unit Roots; Structural Breaks; Interest rates; Inflation; Fisher Effect;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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