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- Title
A Long-Run Non-Linear Approach to the Fisher Effect.
- Authors
CHRISTOPOULOS, DIMITRIS K.; LEÓN-LEDESMA, MIGUEL A.
- Abstract
We argue that the empirical failure of the Fisher effect found in the literature may be due to the existence of non-linearities in the long-run relationship between interest rates and inflation. We present evidence that, for the U.S. during the 1960–2004 period, the Fisher relation presents important non-linearities. We model the long-run non-linear relationship and find that an ESTR model for the pre-Volcker era and an LSTR model for the post-Volcker era are able to control for non-linearities and constitute long-run co-integration vectors. Monte Carlo evidence produces support for the hypothesis that non-linearities may also be responsible for the less than proportional coefficients of inflation usually found in the linear specifications.
- Subjects
FISHER effect (Economics); EFFECT of inflation on interest rates; MONETARY policy; INTEREST rates; PRICE inflation
- Publication
Journal of Money, Credit & Banking (Wiley-Blackwell), 2007, Vol 39, Issue 2/3, p543
- ISSN
0022-2879
- Publication type
Article
- DOI
10.1111/j.0022-2879.2007.00035.x