Testing the Fisher Effect in the US

Yifei Cai ()
Additional contact information
Yifei Cai: Department of Economics, UWA Business School, The University of Western Australia

Economics Bulletin, 2018, vol. 38, issue 2, 1014-1027

Abstract: To apply Quantile Unit Root test and Quantile Cointegration test, this paper revisits the classical Fisher hypothesis. Due to the lower power of conventional unit root tests and Engle-Granger cointegration test, these two newly proposed econometric models shed similar light from different angles. The Quantile Cointegration test indicates that the real interest rate is stationary, which is in line with Fisher Effects. Besides, the empirical results also show asymmetric performance in the mean-reverting process. Likewise, the Quantile Cointegration test reports full Fisher Effects in the upper quantiles, and Fisher puzzles in the lower quantiles by using nominal interest rate and inflation rate. These findings have meaningful economic implications for the US monetary policy authorities. Specifically, the monetary policy authority should pay attention to these asymmetries when making monetary policies, especially avoiding the negative effects of tight monetary policy on mild inflation. Besides, under the condition of hyperinflation, the interest rate would play a one to one role in curbing the irrational inflation.

Keywords: Fisher Hypothesis; Quantile Unit Root Test; Quantile Cointegration Test; Asymmetric Properties (search for similar items in EconPapers)
JEL-codes: C3 E4 (search for similar items in EconPapers)
Date: 2018-05-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.accessecon.com/Pubs/EB/2018/Volume38/EB-18-V38-I2-P97.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-17-00307

Access Statistics for this article

More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().