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The Relationship between Inflation and Interest Rates in the UK: The Nonlinear ARDL Approach

Author

Listed:
  • Ismet Gocer

    (Department of Econometrics, Adnan Menderes University, Aydin, Turkey)

  • Serdar Ongan

    (Department of Economics, St. Mary’s College of Maryland, St. Mary’s City, MD, USA)

Abstract

This study reconsiders the Fisher effect for the UK from a different methodological perspective. To this aim, the nonlinear ARDL model recently developed by Shin et al. (2014), is applied over the periods of 1995M1-2008M9 and 2008M10-2018M1. This model decomposes the changes in original inflation series as two new series: increases and decreases in inflation rates. Hence, it enables us to examine the Fisher effect in terms of increases and decreases in inflation separately. The empirical findings support asymmetrically partial Fisher effects for the UK in the long-run only for the first period. Additionally, this study attempts to describe and introduce a different version of the partial effect concept for the first time for the UK.

Suggested Citation

  • Ismet Gocer & Serdar Ongan, 2020. "The Relationship between Inflation and Interest Rates in the UK: The Nonlinear ARDL Approach," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(3), pages 77-86.
    • Handle: RePEc:cbk:journl:v:9:y:2020:i:3:p:77-86
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    References listed on IDEAS

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    Cited by:

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    3. Sunal, Onur, 2022. "The efficiency of primary sovereign bond markets in Turkey: The so-called Fisher puzzle reconsidered," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 255-261.
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    5. Le Dinh Hac & Dinh Tran Ngoc Huy & Nguyen Ngoc Thach & Bui Minh Chuyen & Pham Thi Hong Nhung & Tran Duc Thang & Tran Tuan Anh, 2021. "Enhancing risk management culture for sustainable growth of Asia commercial bank -ACB in Vietnam under mixed effects of macro factors," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 8(3), pages 291-307, March.

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    More about this item

    Keywords

    Fisher effect; Nonlinear ARDL; the UK’s treasury bond rates;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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