Structural Breaks, Cointegration and the Fisher Effect

Andreas Beyer (), Alfred A. Haug () and William G. Dewald ()
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Alfred A. Haug: Department of Economics, University of Otago, Dunedin, New Zealand., http://www.otago.ac.nz/
William G. Dewald: Department of Economics, Ohio State University, Columbus, OH 43210, USA., http://www.osu.edu/

No 1013, Working Paper Series from European Central Bank

Abstract: There is scant empirical support in the literature for the Fisher effect in the long run, though it is often assumed in theoretical models. We argue that a break in the cointegrating relation introduces a spurious unit root that leads to a rejection of cointegration. We applied new break tests and tested for nonlinearity in the cointegrating relation with post-war data for 15 countries. Our empirical results support cointegration, after accounting for breaks, and a linear Fisher relation in the long run. This is in contrast to several recent studies that found no support for linear cointegration. JEL Classification: E43, C32.

Keywords: Fisher effect; linear and nonlinear cointegration; structural change. (search for similar items in EconPapers)
Date: 2009-02
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