Interest rate and inflation expectations in Finland 1987-1994: a case for the inverted fisher hypothesis

Mika Linden
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Mika Linden: University of Helsinki, Finland

Finnish Economic Papers, 1995, vol. 8, issue 2, 108-115

Abstract: The relationship between interest rates and the rate of inflation is analyzed with cointegration methods in the context of the inverted Fisher hypothesis. The hypothesis is not rejected. The results indicate that the main reasons for the interest rate behaviour in the period 1987/1-1 995/III were positive and over reacting dependence on foreign interest rates and negative dependence on the exchange rate. Real interest rates react to the inflation rate with a coefficient value of close to -1, and the inflation effects on the nominal rates are insignificant. One step recursive predictions of inflation process support the existence of a negative price expectations effect on the real interest rates.

JEL-codes: E37 E43 F41 (search for similar items in EconPapers)
Date: 1995
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Persistent link: https://EconPapers.repec.org/RePEc:fep:journl:v:8:y:1995:i:2:p:108-115

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