Download or read book Testing for the long run relationship between nominal interest rates and inflation using cointegration techniques written by Ronald MacDonald and published by . This book was released on 1987 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Fisher Hypothesis and Inflation Persistence written by Mr.Wensheng Peng and published by International Monetary Fund. This book was released on 1995-11-01 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents an empirical evaluation of the strength of the Fisher effect which predicts a positive relationship between the nominal interest rate and inflation in the postwar period in the five major industrial countries, utilizing recently developed time series techniques. The results suggest that the Fisher effect is stronger in France, the United Kingdom, and the United States than in Germany and Japan. It is argued that the differences in the linkage between the interest rate and the inflation rate as between the two groups of countries are reflected in the time series properties of the inflation rates, which are, in turn, partly attributable to the different extent to which monetary authorities accommodated inflationary shocks. The empirical results have a number of implications for the long-term trend in the SDR interest rate and for the financing of the Fund’s operations.
Download or read book The Long Run Relationship between Nominal Interest Rates and Inflation written by William J. Crowder and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The empirical literature examining the Fisher equation has produced results that are generally inconsistent with the simple textbook representation. Much of this evidence is obtained from statistical analysis that fails to recognize that the nominal interest rate and expected inflation may be modeled as distinct nonstationary series that share a common stochastic trend. Using a fully efficient estimator of theimplied cointegration vector we find evidence of a postwar Fisher relation that is consistent with the standard textbook representation even when taxes on interest income are taken into account. Dynamic analysis based on this long- run relation identifies the common source of the instability (nonstationarity) in the system of nominal interest rates and inflation as the accumulation of inflation innovations. The dynamic response of the system to these shocks is examined by distinguishing the shock that leaves a permanent imprint on the system from the shock that has only a transitory effect.
Download or read book The Long run Relationship Between Interest Rates and Inflation written by Matti Virén and published by . This book was released on 1989 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Testing an Augmented Fisher Hypothesis for Money Market Interest Rates in Finland written by Juha-Pekka Junttila and published by . This book was released on 1998 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we augment the famous Fisher hypothesis by introducing foreign interest rate and exchange rate variables to a tradional Fisherian test equation for the Finnish money market interest rates. Theoretically this augmentation is based on the use of uncovered interest rate parity for nominal rates and certain assumptions concerning the formation of exchange rate expectations. The empirical data covers monthly observations from the beginning of 1987 until the time of Finnish ERM-connection in October 1996. For the purposes of this analysis we have previously generated a time series of adaptive inflation expectations in Finland utilising a univariate time series model and a special structural change procedure in Junttila (1997). The use of cointegration techniques enables to include this generated regressor to the estimation equation, because the possible error-in-variable problem connected to the use of generated regressor in the empirical analysis asymptotically vanishes when unit root methods are applied. In this work the primary method in the cointegration analysis is the Johansen procedure, which is based on maximum likelihood estimation. Furthermore, we also apply Kalman filtering to the recursive estimation of error-correction models for Finnish interest rates. The foreign interest rates and exchange rates are chosen in view of obtaining some empirical results to be used as a background for the vivid discussion in Finland at the moment concerning the possible joining to the European Monetary Union (EMU) at its first phase in 1999. The foreign interest rates corresponding to the analysed domestic money market rates are from Germany, the United Kingdom and Sweden. The effects of each of them were analysed separately in a context, where also the world, i.e. U.S. market effects were examined. The main empirical result from this study is that the decision to float the Finnish markka in September 1992 might have caused remarkable structural changes in the economic relationships. However, applying recursive estimation to error-correction models indicated that at least for the monetary variables analysed here the structural instabilities were more connected to the short-run dynamics than the long-run (stationary) economic relationships. We were able to identify the Fisherian one-to-one positive relationship between the domestic nominal interest rate and domestic inflation expectations in all the analysed settings involving different foreign variables, but at varying maturities in different settings. We also found that the Finnish money market is very much dependent on the development both in the German and Swedish markets, but also the role of British market would seem to be important, because at least both at shortest and longest maturities the Fisherian one-to-one long-run relationship between domestic interest rates and inflation expectations with corresponding expectation horizons was accepted when the effects of British and world markets were controlled for.
Download or read book Threshold Cointegration Test of the Fisher Effect written by Biyong Xu and published by . This book was released on 2004 with total page 184 pages. Available in PDF, EPUB and Kindle. Book excerpt: According to the Fisher hypothesis, the nominal interest rate moves one-to-one with the rate of inflation anticipated by the public, and the expected real rate of return is constant over time. The hypothesis implies that in the long run there is a one-to-one correspondence between changes of the nominal interest rate and the changes of inflation, which is often referred to as the Fisher effect in the literature. To test the Fisher hypothesis, most of the previous empirical studies are using linear models in time series, which was predicated on the assumption that the path of adjustment towards long-run equilibrium is necessarily symmetric. The assumption of symmetric adjustment, however, may not be warranted. It is frequently argued that that some fundamental economic variables, including the real GNP and the unemployment rate, display asymmetric adjustment paths, which cannot be properly modeled by linear models. Since the real interest rate is closely related to these variables, it may also follow an asymmetric adjustment path. In this dissertation, we study the Fisher relationship within a fresh nonlinear framework. The dissertation is filling several blanks in the empirical literature. First, we test the stationarity of the nominal interest rate and the inflation rate under a nonlinear threshold autoregressive model, and it seems a unit root can not be rejected for most of countries under our study. Second, a two-stage threshold cointegration analysis has been applied to test for the presence of nonlinearity in the long-term equilibrium between the nominal interest rate and the inflation rate. We find some evidences nonlinearity in the Fisher relationship. Third, a two-regime threshold vector error correction model (TVECM) is used to explicitly model the nonlinearity and encompassing tests are carried out to compare the out-of-sample forecast efficiency of linear and nonlinear models. Our study seems to support the existence of the Fisher effect in the long run, which is consistent with previous studies.
Download or read book Testing the Expectations Hypothesis when Interest Rates are Near Integrated written by Meredith J. Beechey and published by . This book was released on 2008 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Nominal interest rates are unlikely to be generated by unit-root processes. Using data on short and long interest rates from eight developed and six emerging economies, we test the expectations hypothesis using cointegration methods under the assumption that interest rates are near integrated. If the null hypothesis of no cointegration is rejected, we then test whether the estimated cointegrating vector is consistent with that suggested by the expectations hypothesis. The results show support for cointegration in ten of the fourteen countries we consider, and the cointegrating vector is similar across countries. However, the parameters differ from those suggested by theory. We relate our findings to existing literature on the failure of the expectations hypothesis and to the role of term premia"--Federal Reserve Board web site.
Download or read book The Time Series Properties of Norwegian Inflation and Nominal Interest Rate written by Pär Österholm and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: This paper investigates the time-series properties of Norwegian inflation and nominal interest rate using annual data from 1850 to 2004. A number of different univariate unit-root tests are employed to examine whether the time series are mean reverting or generated by unit-root processes. Results show very strong evidence in favour of mean reversion in inflation but a unit root in the nominal interest rate. This implies that there exists no long-run relationship between these two variables, a conclusion which is further supported by cointegration tests and estimated vector error correction models. The cointegration analysis also points to an important potential pitfall when using cointegration techniques on systems where some variables are stationary processes
Download or read book Estimating the demand for money in Libya An application of the Lagrange multiplier structural break unit root test and the ARDL cointegration approach written by Ali Issa and published by Litres. This book was released on 2022-01-29 with total page 13 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the demand for money in Libya using annual data for the period 1970—2010 by applying the Autoregressive Distributed Lag (ARDL) cointegration approach and allowing for endogenous structural breaks in cointegration equation. The results based on the bounds testing procedure confirm that a stable, long-run relationship exists between demand for money and its fundamental determinants; namely, real income, inflation rate and nominal exchange rate. The empirical results indicate that there is a unique cointegrated and stable long-run relationship among real money demand (M1), real income, inflation rate, and nominal exchange rate. The real income elasticity coefficient was found positive while the inflation rate elasticity and nominal exchange rate were negative. This shows that depreciation of domestic currency decreases the demand for money. The results also reveal that after incorporating the CUSUM and CUSUMSQ tests, M1 money demand function is stable between 1982 and 2010.
Download or read book Testing an Augmented Fisher Hypothesis for a Small Open Economy written by Juha-Pekka Junttila and published by . This book was released on 2001 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We augment the famous Fisher hypothesis for a small open economy by introducing foreign interest rate and exchange variables to the traditional test equation of the hypothesis. Using the Johansen cointegration method for the Finnish money market interest rate data we find it is possible to find a positive long-run relationship between nominal interest rates and inflation. We also find that for a small open economy, like Finland, the effects from the corresponding markets of its main foreign trade partners are important when analyzing single macroeconomic hypotheses, like the Fisher hypothesis.
Download or read book Interest Rate Behavior Under Financial Liberalization in Costa Rica written by Norberto Zʹuñiga Fallas and published by . This book was released on 1993 with total page 236 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Fisher Hypothesis and Inflation Persistence written by Wensheng Peng and published by International Monetary Fund. This book was released on 1995-11 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents an empirical evaluation of the strength of the Fisher effect which predicts a positive relationship between the nominal interest rate and inflation in the postwar period in the five major industrial countries, utilizing recently developed time series techniques. The results suggest that the Fisher effect is stronger in France, the United Kingdom, and the United States than in Germany and Japan. It is argued that the differences in the linkage between the interest rate and the inflation rate as between the two groups of countries are reflected in the time series properties of the inflation rates, which are, in turn, partly attributable to the different extent to which monetary authorities accommodated inflationary shocks. The empirical results have a number of implications for the long-term trend in the SDR interest rate and for the financing of the Fund’s operations.
Download or read book Cointegration For The Applied Economist written by B Bhaskara Rao (Ed.) and published by Allied Publishers. This book was released on 1997 with total page 254 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Long Run Relatinship between Interest Rates and Inflation written by M. Thenmozhi and published by . This book was released on 2005 with total page 10 pages. Available in PDF, EPUB and Kindle. Book excerpt: The extent to which movements in nominal interest rates change with anticipated inflation has been keenly researched ever since Fisher (1930) first pointed out that efficient capital markets should compensate for changes in the purchasing power of money. In the Indian context, this relationship was not given much focus until the beginning of 1990s due to the administered interest rate mechanism. Since the beginning of economic reforms and the liberalization of capital market, the interest rates were allowed to float, except the Bank Rate and the interest rate on savings deposits and the question of determining the interest rates became a big issue. Hence, this study examines the short-run and long run comovements of interest rates and inflation using cointegration analysis and error correction model. The results show that inflation causes 91-day Treasury bill yield and MIBOR indicating that the interest rates are now more market determined and there is evidence of Fisher's hypothesis.
Download or read book Estimating the Long run Relationship Between Interest Rates and Inflation written by Lawrence H. Summers and published by . This book was released on 1984 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: This note demonstrates that Bennett McCallum's recent critique of low frequency estimates of macro-economic relationships is of little empirical significance. It also demonstrates that readily available and frequently used techniques can be used to diagnose the problem McCallum raises. Finally, it shows that the standard critique of expectational distributed lags is not warranted once the role of learning by economic agents is recognized.
Download or read book Modelling the US A Exchange Rate Using Cointegration Techniques written by Costas I. Karfakis and published by . This book was released on 1996 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Testing for Cointegration Using the Johansen Methodology when Variables are Near Integrated written by Erik Hjalmarsson and published by International Monetary Fund. This book was released on 2007-06 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the properties of Johansen's (1988, 1991) maximum eigenvalue and trace tests for cointegration under the empirically relevant situation of near-integrated variables. Using Monte Carlo techniques, we show that in a system with near-integrated variables, the probability of reaching an erroneous conclusion regarding the cointegrating rank of the system is generally substantially higher than the nominal size. The risk of concluding that completely unrelated series are cointegrated is therefore non-negligible. The spurious rejection rate can be reduced by performing additional tests of restrictions on the cointegrating vector(s), although it is still substantially larger than the nominal size.
