Interest rates and the fisher effect in India

Paul, Muthucattu Thomas

doi:10.1016/0165-1765(84)90022-3

Cited by 11 publications

(4 citation statements)

References 4 publications

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“…Thus, the findings support Fisher’s ( 1980 ) idea of no strong short-run association between interest rate and expected inflation. While the short-run results on Fisher effect agrees with previous studies such as Paul ( 1984 ), Mishkin and Simone (1995), and Sathye et al ( 2009 ), they are not in tandem with those reported by Lee ( 2009 ), Ogbonna ( 2013 ), and Balparda et al ( 2017 ).…”

Section: Resultssupporting

confidence: 82%

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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: 82%

“…Empirical studies conducted on Asia are vast. In the context of the Indian economy, studies like Paul ( 1984 ) and Sathye et al ( 2009 ) have investigated the existence of Fisher effect. The conclusions from these studies significantly support the Fisher hypothesis in the long run as well as in the short run.…”

Section: Empirical Literaturementioning

confidence: 99%

Does the Fisher effect hold in Rwanda?

et al. 2022

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“…Almost all the studies have examined the relationship between NSTIR and inflation and no strong evidence of the existence of the Fisher effect was noticed in these studies. In the context of emerging economies like India, Thomas Paul (1984) examined the Fisher effect. It has been more than two decades now and important changes have taken place in the Indian economy.…”

Section: Literature On the Fisher Effectmentioning

confidence: 99%

The Fisher Effect in an Emerging Economy: The Case of India

Sathye¹,

Sharma²,

Liu³

2009

IBR

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The objective of this study is to test the relationship between short-term nominal interest rate and inflation in the context of the Indian financial market. To achieve this objective we perform Augmented Dickey-Fuller unit root test to check for stationarity and thereafter we test for co-integration using the Engle-Granger method and further corroborate the findings of this test with the Johansen-Juselius method. Lastly, we perform the Granger causality test. Monthly data of inflation and nominal short term interest rates for the period from April 1996 to August 2004 were used. We find that expected inflation and nominal short-term interest rates are co-integrated in the Indian context. Thus, the present study doesn't reject the Fisher effect in the Indian financial market. This test shows that expected inflation is Granger caused by nominal short term interest rates. These findings are important in the context of financial market policies in emerging economies like India.

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“…Several studies address the determinants of interest rates in Asian countries, such as Maitra (2017), Abubakar and Sivagnanam (2016), Bhattacharya et al (2008), Bhanumurthy and Agarwal (2003), Dua and Pandit (2002), Nachane (1988), andPaul (1984) for the Indian economy. These studies differ significantly regarding time span, data frequencies, modeling, and methodological aspects, their findings being thus mixed but generating significant discussions due to policy implications.…”

Section: Theoretical Background and A Brief Literature Reviewmentioning

confidence: 99%

Monetary and fiscal factors in nominal interest rate variations in Sri Lanka under a deregulated regime

Maitra

2017

Financ Innov

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Background: This paper examines the role of monetary and fiscal factors in interest rate variations in Sri Lanka under its deregulated regime of interest rates. In addition the paper also examines the role of monetary factors in the variation of interest rates, using a quarterly dataset for the post-global recession period, when the exchange rate is determined by market forces. Results: Empirical analysis uses a dataset of nominal interest rates, money growth, income growth, changes in nominal exchange rate, and budget deficit. From the methodological point of view the paper involves vector autoregression model and Wald tests of Granger causality, followed by impulse response analysis while stationarity and the order of integration of the selected variables are confirmed involving the augmented Dickey-Fuller and the Phillips-Perron unit-root tests. Results: The paper confirms that both monetary and fiscal factors have significant effects on the variations of interest rates. Money growth triggers an increase in interest rates, which supports the Fisher equation view, while income growth has a negative impact. Budget deficit causes a rise in interest rates, but the role of the exchange rate is found to be almost insignificant, probably due to including exchange rate series that cover both the pegged and market-based regimes of exchange rates. The second part of the analysis, using a quarterly dataset for the post-global recession period, further establishes the positive impact of M2 money growth and income growth on interest rates. In this case, exchange rate depreciation causes an increase in interest rates.

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Interest rates and the fisher effect in India

Cited by 11 publications

References 4 publications

Does the Fisher effect hold in Rwanda?

Does the Fisher effect hold in Rwanda?

The Fisher Effect in an Emerging Economy: The Case of India

Monetary and fiscal factors in nominal interest rate variations in Sri Lanka under a deregulated regime

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