Interest Rates, Inflation and Partial Fisher Effects under Nonlinearity: Evidence from Canada
Serdar Ongan () and
Ismet Gocer ()
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Serdar Ongan: St. Mary`s College of Maryland, Department of Economics
Ismet Gocer: Adnan Menderes University, Department of Econometrics
Economics Bulletin, 2018, vol. 38, issue 4, 1957-1969
Abstract: This study aims to reexamine and reconsider the Fisher effect for Canada from a different methodological perspective. To this aim, the nonlinear ARDL model, recently introduced by Shin et al. (2014), is applied for the first time for this country between 1991M1-2018M1. This model decomposes the changes in inflation rates from one series (variable) to two new series (variables) as increases and decreases derived from the original series of inflation. Hence, it enables us to reexamine the Fisher effect in terms of increases and decreases in inflation rates separately. The empirical findings of the nonlinear model reveal that increases and decreases in inflation rates have different (asymmetric) effects on nominal interest rates. When the maturity gets shorter (longer), decreases (increases) in inflation rates affect the nominal interest rates more. Additionally, this model with its decomposed variables enables us to describe and introduce a new version of partial Fisher effects in the long-run and short-run when reconsidering the partiality of the Fisher effect.
Keywords: Fisher effect; Nonlinear and Linear ARDL models; Canadian bond rates (search for similar items in EconPapers)
JEL-codes: E4 E5 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-18-00532
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