Structural Breaks, Inflation and Interest Rates: Evidence from the G7 Countries

Abstract

This study reconsiders the common unit root/co-integration approach to test for the Fisher effect for the economies of the G7 countries. We first show that nominal interest and inflation rates are better represented as I (0) variables. Later, we use the Bai-Perron procedure to show the existence of structural changes in the Fisher equation. After considering these breaks, we find very limited evidence of a total Fisher effect as the transmission coefficient of the expected inflation rates to nominal interest rates is very different than one.

Wagner proposition in Nigeria: An econometric analysis

“…Accordingly, the M þ 1 (0 to M) global information criteria was selected as a decision for the estimation. The essence of the selection is based on the fact that it is believed to be a consistent estimator of the true number of breaks, because it takes into account global shocks on internal affairs and it is a modified version of Schwarz* criterion in Liu, Wu, & Zidek (LWZ) (1997) (Bai and Perron, 2003;Aliu, 2016, Clemente, 2017Perron, 2018, Casini andPerron, 2018). From the table, five (5) structural break dates were 1981 2: 1975, 2002 3: 1969, 1977, 2002 4: 1969, 1977, 1999, 2011 5: 1969, 1981, 1992, 2000, 2011 Source: Author's (2020) Eview Output.…”

Cointegration tests at the quantiles

“…If the variables are cointegrated then monetary policy is irrelevant, neutral, but there are mixed results on this issue and different approaches have been implemented. For instance, Clemente, Gadea, and Reyes (2017) and Ghazali and Ramlee (2003) find evidence against neutrality, while Su and Phillips (2004) and Lardic and Mignon (2003) results support the money neutrality hypothesis. Ozcan and Ari (2015) findings are in between, concluding for a partial effectiveness of monetary policies.…”

Characterizing growth instability: new evidence on unit roots and structural breaks in countries’ long run trajectories

“…Recent contributions in the field have addressed specific aspects such as the possibility of I(1) models with breaks (Carrion-i Silvestre et al 2009;Harvey et al 2013), extensions to spatial panel models (Baltagi et al 2016;Sengupta et al 2017) and the consistency of trend break locations (Yang et al 2017). 8 Unit roots and structural break tests have been applied to a wide range of macroeconomic time series including inflation and interest rates (Clemente et al 2017), unemployment (García-Cintado et al 2015Cheng et al 2014), exchange rates (Månsson and Sjölander 2014), and commodity and oil prices (Gadea et al 2017;Winkelried 2018). Relatively few empirical applications of unit root tests have focused on countries' long-run growth paths, although a number of studies test for the presence of unit roots in historical time series of real GDP per capita, generally for a few advanced countries.…”