Is the Fisher effect robust? Further evidence

Abstract

New international evidence exists on the Fisher effect in the United States, the United Kingdom, Japan, Germany and Canada over the modern (post-March 1973) floating exchange rate experience. Some puzzling data has been observed which suggests that the Fisher effect appears to be strong only for particular sample periods. It has also been reported in the literature that the Fisher effect is more likely in the long run, and that it is not common across economic regimes. This study sheds some light on these controversial issues taking advantage of more powerful tests for unit roots and cointegration. The findings for the Fisher effect contrast with previous results, especially those of Mishkin. The empirical results appear to accord with historical observations on interest rate movements in the five countries. Some important results are as follows: (1) the Fisher effect is not robust to policy changes; (2) there is strong evidence of a long-run Fisher effect for the United States, Germany, and Japan, but little evidence for the United Kingdom and Canada; (3) the short-run Fisher effect is only detected in Germany.

The Fisher hypothesis: a multi-country analysis

“…In contrast, Mishkin [29], has confirmed a strong long-run Fisher effect, but no evidence of the short-run Fisher eflfect for the US. Besides, Yuhn [42] has reported that the Fisher effect is strong over long horizons, but there is a confirmation of a short-run Fisher effect detected in Germany.…”

“…In addition to that, Yuhn [42] has found a strong long-run Fisher effect for Germany, US, and Japan, but no noticeable evidence was found for UK, and Canada.…”

“…He characterized the long-run Fisher effect as the existence of cointegration between nominal interest rates and inflation rates, and the short-run Fisher effect as a positive functional relationship between a change in the nominal interest rate and a change in inflation rate. This method is however, debatable [42]. It was suggested in [42], that a straightforward way to test the short and long-run…”

“…This method is however, debatable [42]. It was suggested in [42], that a straightforward way to test the short and long-run…”

Testing the Long-Run Fisher Effect in Selected African Countries: Evidence from ARDL Bounds Test

“…The Fisher hypothesis has been validated by Garcia (1993) for Brazil, Thornton (1996) for Mexico, Payne and Ewing (1997) for Malaysia, Pakistan and Sri Lanka, and Atkins and Coe (2002) for US and Canada. Yuhn (1996) found evidence supporting the Fisher effect in US, Germany and Japan, but little evidence of it in UK and Canada. Inder and Silvapulle (1993) did not find evidence in favor of the Fisher effect in Australia.…”