Christopoulos, D.K. and Leon-Ledesma, M.A. (2007) A long-run non-linear approach to the Fisher effect. Journal of Money Credit and Banking, 39 (2-3). pp. 543-559. ISSN 0022-2879.
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We argue that the empirical failure of the Fisher effect found in the literature may be due to the existence of non-linearities in the long-run relationship between interest rates and inflation. We present evidence that, for the U.S. during the 1960–2004 period, the Fisher relation presents important non-linearities. We model the long-run non-linear relationship and find that an ESTR model for the pre-Volcker era and an LSTR model for the post-Volcker era are able to control for non-linearities and constitute long-run co-integration vectors. Monte Carlo evidence produces support for the hypothesis that non-linearities may also be responsible for the less than proportional coefficients of inflation usually found in the linear specifications.
|Uncontrolled keywords:||Fisher effect, non-linearities, co-integration.|
|Subjects:||H Social Sciences > HB Economic Theory|
|Divisions:||Faculties > Social Sciences > School of Economics|
|Depositing User:||Louise Dorman|
|Date Deposited:||19 Dec 2007 19:31|
|Last Modified:||14 Jan 2010 14:05|
|Resource URI:||http://kar.kent.ac.uk/id/eprint/2159 (The current URI for this page, for reference purposes)|
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