Abstract:The Fisher effect has been commonly analyzed to investigate the long-run relationship between nominal interest rates and expected inflation rate, though it is rarely successful in finding the cointegration relationship as the Fisher effect states. In this paper, a Bayesian Markov switching vector error correction model is applied to analyze non-linearity in the Fisher effect in the case of Japan. We find that the Fisher effect holds in one regime although it does not hold in another regime when the nominal int… Show more
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