Fisherian Transmission and Efficient Arbitrage under Partial Financial Indexation: The Case of Chile

Enrique Mendoza

IMF Staff Papers, 1992, vol. 39, issue 1, 121-147

Abstract: Partial financial indexation in Chile has produced a system in which most bank deposits are 30-day nonindexed deposits or 90-day indexed deposits. This paper uses data on the interest rates of these financial assets to test the joint hypothesis of rational expectations, efficient arbitrage, and a time-invariant liquidity premium. The data are also used to test whether the indexed/nonindexed interest spread is an accurate predictor of future changes in inflation, as the Fisher effect dictates. The significant implications of this empirical analysis for monetary policy are discussed.

JEL-codes: E43 E44 E52 (search for similar items in EconPapers)
Date: 1992
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