Structural Breaks, Inflation and Interest Rates: Evidence from the G7 Countries

Jesus Clemente Lopez, María Gadea (), Antonio Montañés and Marcelo Reyes

Econometrics, 2017, vol. 5, issue 1, 1-17

Abstract: This study reconsiders the common unit root/co-integration approach to test for the Fisher effect for the economies of the G7 countries. We first show that nominal interest and inflation rates are better represented as I(0) variables. Later, we use the Bai–Perron procedure to show the existence of structural changes in the Fisher equation. After considering these breaks, we find very limited evidence of a total Fisher effect as the transmission coefficient of the expected inflation rates to nominal interest rates is very different than one.

Keywords: unit roots; structural breaks; interest rates; inflation; Fisher effect (search for similar items in EconPapers)
JEL-codes: B23 C C00 C01 C1 C2 C3 C4 C5 C8 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Structural Breaks, Inflation and Interest Rates: Evidence for the G7 countries (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jecnmx:v:5:y:2017:i:1:p:11-:d:90640

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