The Fisher Effect and the Term Structure of Interest Rates: Tests of Cointegration

Myles S Wallace and John Warner

The Review of Economics and Statistics, 1993, vol. 75, issue 2, 320-24

Abstract: The literature on the Fisher effect has ignored the potential relationship between inflation and long-term interest rates. Using an expectations model of the term structure of interest rates, the authors establish the conditions under which innovations in short-term inflation will be transmitted to long-term as well as short-term interest rates. Cointegration tests find support for both the Fisher effect and the expectations theory of the term structure. Copyright 1993 by MIT Press.

Date: 1993
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