The Fisher Effect and The Long–Run Phillips Curve --in the case of Japan, Sweden and Italy --

Shigeyoshi Miyagawa () and Yoji Morita
Additional contact information
Shigeyoshi Miyagawa: Kyoto Gakuen University, Department of Economics, Postal: Kyoto, 621-6355 Japan
Yoji Morita: Kyoto Gakuen University, Department of Economics, Postal: Kyoto, 621-6355 Japan

No 77, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: The object of the paper is to attempt to assess the two classical long-run neutrality; the Fisherian link between inflation rate and nominal interest rate, and the natural rate hypothesis proposed by Friedman(1968) and Phellps (1967, 1968). We use the quarterly data for Japan, Sweden and Italy. In order to investigate the classical long-run neutrality, we use the non-structural bivariate autoregressive methodology King and Watson (1997) developed to avoid the Lucas-Sargent critique. They showed that long-run neutrality can be tested with limited structural information when nominal variables are integrated.

We pay close attention to the unit root properties of the data, since it takes very crucial role in applying their methodology. Our test results show that all data of Japan, Sweden and Italy we use here do not have unit root and cointegration. The empirical evidences of the Fisherian link and the long-run Phillips curve in Japan, Sweden and Italy are consistent with those of United States by King and Watson (1997). The classical Fisherian link which means that permanent shift in inflation rate will have no effect on real interest rate would not be accepted. On the contrary, we could find little evidence against the vertical long-run Phillips curve. A long-run trade off between inflation and unemployment was rejected.

Keywords: long-run neutrality; unit root; cointegration (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2002-08-31, Revised 2003-03-27
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/2077/2832 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:gunwpe:0077

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers in Economics from University of Gothenburg, Department of Economics Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Jessica Oscarsson ().