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Testing the Fisher hypothesis in the G-7 countries using I(d) techniques

Guglielmo Maria Caporale and Luis Gil-Alaña

International Economics, 2019, issue 159, 140-150

Abstract: This paper revisits the Fisher hypothesis concerning the determination of real rates by estimating fractional integration and cointegration models for nominal interest rates and expected inflation in the G7 countries. Two sets of results are obtained under the alternative assumptions of white noise and Bloomfield (1973) autocorrelated errors respectively. The univariate analysis suggests that the differencing parameter is higher than 1 for most series in the former case, whilst the unit root null cannot be rejected for the majority of them in the latter case. The multivariate results imply that there exists a positive relationship, linking nominal interest rates to inflation; however, there is no evidence of the full adjustment of the former to the latter required by the Fisher hypothesis.

Keywords: Fisher effect; Fractional integration; Long memory; G7 countries (search for similar items in EconPapers)
JEL-codes: C22 C32 E43 (search for similar items in EconPapers)
Date: 2019
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Journal Article: Testing the Fisher hypothesis in the G-7 countries using I(d) techniques (2019) Downloads
Working Paper: Testing the Fisher Hypothesis in the G-7 Countries Using I(d) Techniques (2017) Downloads
Working Paper: Testing the Fisher Hypothesis in the G-7 Countries Using I(d) Techniques (2017) Downloads
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