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

Keho, Yaya

doi:10.5539/ijef.v7n12p168

Cited by 12 publications

(5 citation statements)

References 38 publications

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“…The results show the existence of the partial Fisher effect. The findings support those reported, for example, by Huizinga and Mishkin ( 1986 ), Kandel et al ( 1996 ), Lee ( 2009 ), Awomuse and Alimi ( 2012 ), and Yaya ( 2015 ), while deviating from those of Panopoulou and Pantelidis ( 2016 ) for Ireland and for Switzerland (Paleologos and Georgantelis 1996). Similar findings have been reported for Malaysia, Thailand, South Korea, Philippines, and India as well (Phiri and Said 2001; Abubakar and Sivagnanam 2017 ).…”

Section: Resultssupporting

confidence: 88%

“…Their findings show that the full Fisher effect is supported by all countries in the sample except Ireland and Switzerland. With respect to the African economies, Yaya ( 2015 ) employed the ARDL bounds test cointegration technique to examine the validity of the Fisher effect for 10 African countries. He reported that the full Fisher effect holds for Kenya, while Cote d’Ivoire and Gabon have the partial Fisher effect.…”

Section: Empirical Literaturementioning

confidence: 99%

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Does the Fisher effect hold in Rwanda?

et al. 2022

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The Fisher hypothesis suggests a one-to-one link between nominal interest rate and expected inflation. The indication is that interest rate is independent of expected inflation. This paper empirically examines the Fisher effect in Rwanda using data from 2012m5 to 2020m2. We employ the Autoregressive Distributed Lag (ARDL) technique for data analysis. We find evidence of partial Fisher effect in Rwanda during the period. This indicates that changes in expected inflation are not fully absorbed in the nominal interest rate which suggests that bank deposits decline over time. Also, the findings suggest that monetary policy may not be efficient in such a circumstance and household’s savings rate may suffer a decrease. Besides, the short-run results show no Fisher effect between nominal interest rate and expected inflation. This calls for great attention while fixing interest rate as a tool for monetary policy.

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Section: Resultssupporting

confidence: 88%

Section: Empirical Literaturementioning

confidence: 99%

Does the Fisher effect hold in Rwanda?

et al. 2022

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“…Controlling inflation with the help of interest rates has become the only goal of many Central Banks during the previous few decades [26] because inflation targeting is a complete monetary framework that ensures price stability along with other monetary objectives [27][28][29]. However, inflationary pressures can lead to contractionary monetary policy that impacts economic growth, poverty, and inequality [30][31][32][33]. Thus, the direction of causality between inflation and interest rate is the prime concern because it is related to the potency of the monetary policy framework.…”

Section: Empirical Debatementioning

confidence: 99%

Inflation targeting: A time-frequency causal investigation

Islam,

Ahmed

2023

PLoS ONE

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The enduring discourse regarding the effectiveness of interest rate policy in mitigating inflation within developing economies is characterized by the interplay of structural and supply-side determinants. Moreover, extant academic literature fails to resolve the direction of causality between inflation and interest rates. Nevertheless, the prevalent adoption of interest rate-based monetary policies in numerous developing economies raises a fundamental inquiry: What motivates central banks in these nations to consistently espouse this strategy? To address this inquiry, our study leverages wavelet transformation to dissect interest rate and inflation data across a spectrum of frequency scales. This innovative methodology paves the way for a meticulous exploration of the intricate causal interplay between these pivotal macroeconomic variables for twenty-two developing economies using monthly data from 1992 to 2022. Traditional literature on causality tends to focus on short- and long-run timescales, yet our study posits that numerous uncharted time and frequency scales exist between these extremes. These intermediate scales may wield substantial influence over the causal relationship and its direction. Our research thus extends the boundaries of existing causality literature and presents fresh insights into the complexities of monetary policy in developing economies. Traditional wisdom suggests that central banks should raise interest rates to combat inflation. However, our study uncovers a contrasting reality in developing economies. It demonstrates a positive causal link between the policy rate and inflation, where an increase in the central bank’s interest rates leads to an upsurge in price levels. Paradoxically, in response to escalating prices, the central bank continues to heighten the policy rate, thereby perpetuating this cyclical pattern. Given this observed positive causal relationship in developing economies, central banks must explore structural and supply-side factors to break this cycle and regain control over inflation.

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“…Adegboyega et al (2013) tested the Fisher effect with the aautoregressive distributed lag (ARDL) model and found partial effect for Nigeria. Yaya (2015) used the co-integration technique for ten African countries and found the Fisher effect only for Kenya. Cai (2018), using the quantile cointegration technique, found the Fisher effect for the US.…”

Section: Literature Reviewmentioning

confidence: 99%

Asymmetric Impacts of Inflation on the US Bond Rates and FED’s Pre-Emptive Policy

Göçer

Ongan

2020

Econometric Research in Finance

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This study investigates the asymmetric impacts of changes in inflation rates on the US bond rates. This investigation is constructed on the Fisher Equation. To this end, the nonlinear ARDL model is applied. Empirical findings indicate that only the decreases (π− t ) in inflation rates affect bond rates. This asymmetric impact therefore shapes the FED’s monetary policy in terms of determining the bond rates at lower cost. When the inflation rate rises, the FED will know (in advance) that they do not need to increase the bond rates. This reminds us the FED’s former pre-emptive strike policy against inflation.

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

Cited by 12 publications

References 38 publications

Does the Fisher effect hold in Rwanda?

Does the Fisher effect hold in Rwanda?

Inflation targeting: A time-frequency causal investigation

Asymmetric Impacts of Inflation on the US Bond Rates and FED’s Pre-Emptive Policy

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