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On some neglected implications of the Fisher effect

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  • Antonio Ribba

Abstract

Following the lead of Fama [American Economic Review 65 (1975) 269-282] and of other influential papers, such as Mishkin [Journal of Monetary Economics 30 (1992) 195-215], it has become standard to interpret the Fisher effect as the ability of short-term interest rate to predict future inflation. However, in this paper we demonstrate that by restricting to zero the instantaneous response of expected inflation to an interest rate shock, one can identify a disturbance that economic agents, according to the Fisherian framework, should evaluate as transitory. An important implication of this result is that short-term nominal interest rates cannot be interpreted as predictors, at least not long-run predictors, of inflation. We illustrate this result with an empirical application to US postwar data.
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(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

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  • Antonio Ribba, 2011. "On some neglected implications of the Fisher effect," Empirical Economics, Springer, vol. 40(2), pages 451-470, April.
    • Handle: RePEc:spr:empeco:v:40:y:2011:i:2:p:451-470
    DOI: 10.1007/s00181-010-0348-9
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    Cited by:

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    2. Cavallo, Antonella & Ribba, Antonio, 2014. "Euro area inflation as a predictor of national inflation rates," Journal of Policy Modeling, Elsevier, vol. 36(6), pages 1048-1065.

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    More about this item

    Keywords

    Fisher effect; Identification; Structural cointegrated VARs; E40; C32;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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