Revisiting the Fisher hypothesis for the cases of Argentina, Brazil and Mexico

Carneiro, Francisco; Ângelo, José; Divino, C. A.; Rocha, Carlos Henrique

doi:10.1080/13504850110049405

Cited by 21 publications

(11 citation statements)

References 18 publications

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“…Inflation expectations are estimated utilising a five‐month moving average (with two leads and two lags) of actual inflation (C5) as suggested by Yuhn (1996). 5 Pain and Thomas (1997) and Carneiro et al. (2002) also utilise a simple moving average modeling procedure to generate the required expected inflation time series.…”

Section: Methodsmentioning

confidence: 99%

“…Inflation expectations are estimated utilising a five-month moving average (with two leads and two lags) of actual inflation (C5) as suggested by Yuhn (1996). 5 Pain and Thomas (1997) and Carneiro et al (2002) also utilise a simple moving average modeling procedure to generate the required expected inflation time series. Yuhn (1996) motivates this methodology by pointing out that economic agents make their inflation forecast based on a finite information set that does not span too far into the future.…”

Section: (A) Datamentioning

confidence: 99%

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Inflation Targeting and the Fisher Effect in South Africa: An Empirical Investigation

Mitchell-Innes

Aziakpono

Faure

2007

South African J Economics

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The paper analyses the relationship between expected inflation and nominal interest rates during a period of inflation targeting in South Africa, "i.e." from 2000 to 2005. Specifically, it investigates the Fisher hypothesis that nominal interest rates move one-to-one with expected inflation, leaving the real interest rate unaffected. The analysis distinguishes between a short-run Fisher effect and a long-run Fisher effect. Using cointegration and error correction models (for monthly data for the period April 2000 to July 2005), it was found that the short-run Fisher hypothesis did not hold during the relevant period under the inflation targeting monetary policy framework in South Africa. This is attributed to a combination of the South African Reserve Bank's (SARB) control over short-term interest rates and the effects of the monetary transmission mechanism. The long-run Fisher hypothesis could not be confirmed in its strictest form: while changes in inflation expectations move in the same direction as the nominal long-term interest rate. This suggests that monetary policy has an influence on the real long-term interest rate, which has positive implications for general economic activity, thus confirming the credibility of the inflation targeting framework. Copyright (c) 2007 The Authors. Journal compilation (c) 2007 Economic Society of South Africa.

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Section: Methodsmentioning

confidence: 99%

Section: (A) Datamentioning

confidence: 99%

Inflation Targeting and the Fisher Effect in South Africa: An Empirical Investigation

Mitchell-Innes

Aziakpono

Faure

2007

South African J Economics

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“…The authors contended that for each of these five countries, the real interest rate is non-stationary in levels. Similarly, Carneiro et al (2002) revealed no homogenous results for three big Latin American countries: Mexico, Argentina, and Brazil. The authors' analysis revealed that there appears to be a stable long-run relationship between nominal interest rates and inflation rates just for Argentina and Brazil.…”

Section: Empirical Literature On the Interest Rates−inflation Nexusmentioning

confidence: 89%

Interest rates, inflation, and exchange rates in fragile EMEs: A fresh look at the long-run interrelationships

Şen

Kaya

Kaptan

et al. 2019

The Journal of International Trade & Economic Development

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This study attempts to establish the possible existence of the long-run interrelationship between interest rates, inflation, and exchange rates in five fragile emerging market economies (Brazil, India, Indonesia, South Africa, and Turkey), what is so-called by Morgan Stanley 'Fragile Five'. To do so, we utilize Li and Lee's (2010) Autoregressive Distributed Lag (ADL) test for threshold cointegration and apply it to sample countries' monthly time-series data from 2013:1 to 2018:12. Overall, our primary results are threefold: First, there seems to be a long-run positive relationship between actual rates of inflation rates and nominal interest rates supporting the validity of the ex-post Fisher hypothesis for all the sample countries. Second, the sample countries' data supports the presence of a cointegrating relationship between interest rates and exchange rates for the case of Brazil, India, and Turkey but not for the case of Indonesia and South Africa. Lastly, without exception, exchange rates and actual rates of inflation in all the sample countries examined tend to co-move in the long-run, implying that the depreciation of their currencies creates inflation through raising the prices of imported goods. The results above are widely compatible with both theoretical expectations and the results of the most previous empirical studies on the long-run interrelationships between interest rates, inflation, and exchange rates in the literature.In this study, we employ Li and Lee's (2010) Autoregressive Distributed Lag (ADL) test for threshold cointegration as the method of estimation. This estimation method has several superiorities compared to its rivals. First, the ADL test does not require the classification of variables into I(1) or I(0). Other cointegration procedures, such as those proposed by Engle and Granger (1987) and Johansen (1988), require checking the order of the integration of variables by using unit root tests and all variables in the model must be integrated of the same order. Second, the ADL test provides better performance in small sample sizes. Lastly, it allows for estimating the long-and the short-run parameters of the model simultaneously. Since the ADL test can overcome these three critical problems, our empirical results contribute to the understanding of the research questions that we seek to find answer in this study.The remainder of the study is organized as follows: The following two sections provide a comprehensive background to the study, focusing on not only the theoretical aspects of the possible relationships between interest rates, inflation, and exchange rates but also their empirical aspects respectively. The proceeding section lays out the econometric analysis of the study. As for Section 4, it first reports the estimation results, and then justifies them. Section 5, the final section, summarizes and concludes.

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“…When the literature is examined, it is seen that there are studies justifying that interest rates are a function of inflation (Equation 5); Barthold and Dougan (1986), Hutchison and Keeley (1989), McDonald and Murphy (1989), Gupta (1991), Woodward (1992), Phylaktis and Blake (1993), Kesriyeli (1994), Pelaez (1995), Peng (1995), Daniels et al (1996), Olekalns (1996), Engsted (1996), Berument et al (1999), Malliaropulos (2000), Lanne (2001), Berument and Jelassi (2002), Atkins and Coe (2002), Carneiro et al (2002), Lardic and Mignon (2003), Million (2004), Turgutlu (2004), Granville and Mallick (2004), Bajo-Rubio et al (2005), Şimşek and Kadılar (2006), Westerlund (2006), Gül and Açıkalın (2008), Westerlund (2008), Tsong and Lee (2009), Bassil (2010), Toyoshima and Hamori (2011), Jareno and Tolentino (2013), Kıran (2013), Doğan, Eroğlu and Değer (2016), İşcan and Kaygısız (2019) detected the existence of a causality relationship from INF to RT in their empirical studies.…”

Section: Rt : Interest Rate Inf : Inflationmentioning

confidence: 99%

A Paradox: An Empiric Approach to Inflation-Interest Rates Relationship: Evidence from Turkey

Çiğdem

2019

RAE

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In today’s world where the independence of central banks is questioned and the recessionary process is discussed, serious debates are experienced between economists and policy makers regarding the paradoxical relationship between two important macro-economic variables; Is inflation the cause of interest rate or is interest rate the cause of inflation? Determination of the causality and its direction is very crucial for the economies which are trying to extricate themselves from the high inflation – high interest rate spiral. The researchers searching for an answer to these discussions have conducted various analyses to test the validity of the Fisher Effect. In these analyses, inflation rate and nominal interest rate -as per the hypothesis- were considered as the variables. However, economic agents make their decisions depending on real values rather than nominal values. The purpose of this study is to provide a real and up-to-date approach to these debates which actually began in 1700s and have been ongoing in the triangle of financial markets-central banks-policy makers. For this purpose, the monthly averages regarding the 2011:01-2019:06 period of Turkey were calculated based on the Weighted Average Cost of Funding (WACF) daily data of The Central Bank of the Republic of Turkey (CBRT) and subjected to the cointegration analyses with the annual CPI figures. While Engle-Granger Test was used to test the long-term relationship, Granger Causality Test was performed to determine the relationship and its direction in the short term through VECM. As a result of the analysis, bilateral causality among variables was determined in the short term. In other words, inflation is a cause of interest rate and interest rate is a cause of inflation. This study makes a contribution to the literature since no study, which detected a bilateral correlation, has been found.

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Revisiting the Fisher hypothesis for the cases of Argentina, Brazil and Mexico

Cited by 21 publications

References 18 publications

Inflation Targeting and the Fisher Effect in South Africa: An Empirical Investigation

Inflation Targeting and the Fisher Effect in South Africa: An Empirical Investigation

Interest rates, inflation, and exchange rates in fragile EMEs: A fresh look at the long-run interrelationships

A Paradox: An Empiric Approach to Inflation-Interest Rates Relationship: Evidence from Turkey

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