Estimating the Fisher Effect and the Stochastic Money Growth Process

Michael Hutchison and Michael C Keeley

Economic Inquiry, 1989, vol. 27, issue 2, 219-39

Abstract: This paper demonstrates that a change in the stochastic process generating money can alter the relationships between money and inflation, and between inflation and interest rates. The extent to which inflation is forecastable is shown to depend significantly on the extent to which money is forecastable. U.S. data over the 1953-86 period are used to demonstrate that instability in the Fisher effect coincides with changes in the stochastic process generating money. There is significantly stronger Fisher effect during a subsample in which money--and hence inflation--are more predictable. Copyright 1989 by Oxford University Press.

Date: 1989
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