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

Jesus Clemente, Antonio Montañes () and Marcelo Reyes ()

Econometrics from EconWPA

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.

Keywords: Unit Roots; Structural Breaks; Interest rates; Inflation; \ Fisher Effect (search for similar items in EconPapers)
JEL-codes: C22 E43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-fin and nep-mac
Date: 2004-01-15
Note: Type of Document - pdf; prepared on win98; pages: 30
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpem:0401005

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