Investigating the Presence of Fisher Effect for the China Economy

Utku Altunöz

Sosyoekonomi Journal, 2018, issue 26(35)

Abstract: In economic science, Fisher effect is known as the long run relationship between interest rates and inflation rates. According to Fisher, when economy at the full employment, increase in inflation is fully reflects to the nominal interest rates. Fisher equation is used to formulate the relationship between inflation and interest rates. Equation stands out the evidence about money growing, inflation and rates. In this study, the validity of fisher effect for China was tested over the period 1996:01 - 2015:03, the long run relationship between nominal interest rate and inflation rate was examined by using ARDL Bounds Testing Approach which was developed by Peseran et al. Before ARDL, theoretical background of Fisher Effect was explained. Following the literature survey, stationary situations were tested by Augmented Dickey Fuller unit root test. After that Autoregressive-Distributed Lag Bounds Test was applied on variables. According to result of study, the presence of fisher effect in China was supported.

JEL-codes: C12 C22 E31 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:sos:sosjrn:180102

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