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Non-Linear Analysis of the Fisher Effect: In the Case of Japan

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  • Katsuhiro Sugita

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 interest rate is stable and does not respond against disequilibrium by the monetary policy such as the zero interest rate policy. This model reveals non-linearity in the error correction mechanism of the Fisher effect in Japan.

Suggested Citation

  • Katsuhiro Sugita, 2017. "Non-Linear Analysis of the Fisher Effect: In the Case of Japan," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(11), pages 1-9, November.
    • Handle: RePEc:ibn:ijefaa:v:9:y:2017:i:11:p:1-9
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    References listed on IDEAS

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    5. Katsuhiro Sugita, 2016. "Bayesian inference in Markov switching vector error correction model," Economics Bulletin, AccessEcon, vol. 36(3), pages 1534-1546.
    6. Bierens, H.J., 1994. "Nonparametric cointegration tests," Other publications TiSEM 2d813b5d-e553-4fca-a9f2-0, Tilburg University, School of Economics and Management.
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    Cited by:

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    2. 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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    More about this item

    Keywords

    Bayesian; cointegration; Markov-switching; Fisher effect;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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