The Fisher effect: Reprise

Peláez, Rolando F.

doi:10.1016/0164-0704(95)80105-7

Cited by 33 publications

(16 citation statements)

References 33 publications

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“…Unit root test results show that these real interest rates are all nonstationary from 1964Q1 to 1996Q2 at the significance level of five per cent (see Table 1), that allows cointegration and the common trend approach. This randomness in real interest rates may result from regime shifts (Huizinga and Mishkin, 1986;andHamilton, 1988, 1989), and is also supporting the previous results of Perron and Garcia (1989), Rose (1988), Walsh (1987), Kunst and Neusser (1990), Pelaez (1995) and Mishkin (1995). 3 ARIMA models with the small number of lags often produced better forecasts than the larger macroeconomic models that have been developed and popular in the 1960s.…”

Section: Real Interest Ratessupporting

confidence: 79%

On the Characterisation of the World Real Interest Rate

Lee

2002

World Economy

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This paper characterises the world real interest rate as a common trend in real interest rates in Germany, Japan, and the United States even if there is scepticism in the existence of the world real interest. In theoretical terms, real interest parity is based on the presumed validity of uncovered interest parity and purchasing power parity, but the empirical evidence of these parity conditions is not strong and thus the presence of the world real interest rate. The significance of this paper is, therefore, to visualise the current level of international economic integration by characterising the approximate world real interest rate as a single common trend, taking full advantage of the fact that real interest rates in three large open economies have been moving together sharing a common component even if their levels are distinctively different. This single common trend has desirable properties as the world real interest rate. First, it is a parsimonious and monotonically increasing function of the real interest rates in three large open economies that can be world price or interest rate maker, in contrast with small open economies. Second, it is moving together with national real interest rates one for one. Hence, the deviations from the world rate are temporary because common trend represents the common driving force of national rates over the long run period. Third, it can explain as high a proportion as possible of the variances of national rates. Copyright Blackwell Publishers Ltd 2002.

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Section: Real Interest Ratessupporting

confidence: 79%

On the Characterisation of the World Real Interest Rate

Lee

2002

World Economy

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“…7. For Fisher (1930), Makin (1982), Wilcox (1983), Findlay (1991), Gupta (1992), Peláez (1995), Esteve…”

Section: Notesmentioning

confidence: 99%

Flow-through capability: The Spanish case

Jareño

2005

J Asset Manag

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Thus, the paper is organised into three parts. The first part looks at the main stock interest risk assessment models. The second part revises previous literature on the Fisher effect, in order to check whether the majority of nominal interest rate movements are caused by inflation rate fluctuations, the real interest rate remaining constant. The final part shows the empirical analysis aimed at estimating the flow-through coefficients of the Spanish companies and sets out the empirical results. Literature reviewThe current literature attempts to extend the concept of bond duration to equities. For instance, Leibowitz and Martin (1986) estimate the interest rate sensitivity of the US equity market. The basic model from which this paper starts is the dividend discount model (DDM) Abstract This paper analyses the repercussion of variations in interest rates on quoted stocks. First, it reviews the main models of interest risk assessment, whose basic tool is the stock duration, that is, the sensitivity of the stock price to movements in nominal interest rates. It also analyses the main criticism concerning these models. Secondly, it estimates the capability of Spanish companies to pass inflation changes on to product or services prices.

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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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The Fisher effect: Reprise

Cited by 33 publications

References 33 publications

On the Characterisation of the World Real Interest Rate

On the Characterisation of the World Real Interest Rate

Flow-through capability: The Spanish case

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

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