The Long-Run Relationship between Nominal Interest Rates and Inflation of the Asian Developing Countries

Rasidah Said and Hawati Janor
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Rasidah Said: Department of Finance Faculty of Business Management University Kebangsaan Malaysia 43600 UKM bangi selangor Darul Ehsan
Hawati Janor: Department of Finance Faculty of Business Management University Kebangsaan Malaysia 43600 UKM bangi selangor Darul Ehsan

Jurnal Ekonomi Malaysia, 2001, vol. 35, 3-11

Abstract: The relationship between nominal interest rates and inflation in developed countries and the G7 countries have been well documented. However, such relationship in relatively less developed Asian countries is less clear and similar studies that consider a different financial markets may have different results. Therefore, this paper uses data for five Asian developing counntries namely Malaysia, Thailand, Indonesia, South Korea and Philippines to examine the Fisherian link between inflation and long-term nominal inetrest rates. In doing so, the Augmented-Dickey Fuller Test and Engle-Granger are applied to investigate the stationary and cointegration properties of the variables. The results indicate unit root properties for the level of interest rates and inflation for all five countries, however there is no cointegration between both variables for all the countries except for Indonesia. The findings for these four coutries are consistent with other findings who argue that the Fisher effect does not hold for countries other than the United States.

Date: 2001
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