The Gibson Paradox and the Fisher Effect in Advanced and Emerging Economies

M. M. Islam Chowdhury and Apostolos Serletis
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M. M. Islam Chowdhury: University of Calgary

Open Economies Review, 2024, vol. 35, issue 5, No 2, 955-983

Abstract: Abstract This paper investigates the long-debated economic relationship between prices and interest rates through two macroeconomic relationships, the Gibson paradox and the Fisher effect. We use recent advances in applied econometrics and quarterly frequency data for the G7 (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) and E7 (Brazil, China, India, Indonesia, Mexico, Russia, and Turkey) countries. We also use the Schmelzing (2019) new data on advanced economy inflation rates and interest rates to investigate the Fisherian link in eight advanced economies (France, Germany, Holland, Italy, Japan, Spain, the United Kingdom, and the United States) across eight centuries. The overall conclusion of the paper demonstrates poor evidence of the Gibson paradox and the Fisher effect across developed and emerging economies.

Keywords: Gibson paradox; Fisher equation; Cointegration; G7; E7 (search for similar items in EconPapers)
JEL-codes: E31 E43 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11079-023-09746-1

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