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The Fisher effect in the presence of time-varying coefficients

Ekaterini Panopoulou () and Theologos Pantelidis ()

Computational Statistics & Data Analysis, 2016, vol. 100, issue C, 495-511

Abstract: A resolution of the Fisher effect puzzle in terms of statistical inference is attempted. Motivation stems from empirical evidence of time-varying coefficients in the data generating process of both the interest rates and inflation rates for 19 OECD countries. These time-varying dynamics crucially affect the behaviour of all the co-integration estimators considered, especially in small samples. When employing simulated critical values instead of asymptotic ones, the results provide ample evidence supporting the existence of a long-run Fisher effect in which interest rates move one-to-one with inflation rates in all countries under scrutiny except for Ireland and Switzerland.

Keywords: Co-integration estimators; Fisher effect; Monte Carlo simulations; Time-varying coefficients (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1016/j.csda.2014.08.015

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Handle: RePEc:eee:csdana:v:100:y:2016:i:c:p:495-511