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Fisher Hypothesis Revisited: A Fractional Cointegration Analysis

Saadet Kirbas Kasman (), Adnan Kasman () and Evrim Turgutlu ()
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Saadet Kirbas Kasman: Department of Economics, Faculty of Business, Dokuz Eylül University
Adnan Kasman: Department of Economics, Faculty of Business, Dokuz Eylül University
Evrim Turgutlu: Department of Economics, Faculty of Business, Dokuz Eylül University

No 05/04, Discussion Paper Series from Dokuz Eylül University, Faculty of Business, Department of Economics

Abstract: This paper investigates the validity of the Fisher hypothesis using data from 33 developed and developing countries. Conventional cointegration tests do not provide strong evidence on the relationship between nominal interest rates and inflation. Therefore, we use fractional cointegration analysis to test the long-run relationship between the two variables. The results indicate that the long-run relationship between nominal interest rates and inflation do not exist for most countries in the sample when conventional cointegration test is employed. However, fractional cointegration between the two variables is found for a large majority of countries, implying the validity of the Fisher hypothesis. The results also indicate that the equilibrium errors display long memory.

Keywords: Fisher hypothesis; interest rates; fractional cointegration; long memory (search for similar items in EconPapers)
JEL-codes: C22 E43 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2005-11-23, Revised 2005-11-23
New Economics Papers: this item is included in nep-ets, nep-ifn, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Forthcoming in Emerging Markets Trade and Finance

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