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The Fisher effect: a Kalman filter approach to detecting structural change

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  • Abdulnasser Hatemi-J
  • Manuchehr Irandoust

Abstract

This article uses quarterly data on short-run nominal interest rates and inflation rates over the last four or three decades collected from Australia, Japan, Malaysia and Singapore to test whether the Fisher relation has empirical support. Since meaningful Fisher effect tests critically depend on the integration and cointegration properties of the variables, we present some empirical evidence on these issues and we also apply the Kalman filter to estimate the time-varying parameters. The results show that the data are generally rejecting a full Fisher effect. This implies that nominal interest rates do not respond point-for-point to changes in the expected inflation rates. The possible reasons for the inability to detect a full Fisher effect are also discussed.

Suggested Citation

  • Abdulnasser Hatemi-J & Manuchehr Irandoust, 2008. "The Fisher effect: a Kalman filter approach to detecting structural change," Applied Economics Letters, Taylor & Francis Journals, vol. 15(8), pages 619-624.
    • Handle: RePEc:taf:apeclt:v:15:y:2008:i:8:p:619-624
    DOI: 10.1080/13504850600721924
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    References listed on IDEAS

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    1. Harvey,Andrew C., 1991. "Forecasting, Structural Time Series Models and the Kalman Filter," Cambridge Books, Cambridge University Press, number 9780521405737, October.
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    Cited by:

    1. Taha Bahadir Sarac & OkYAY Ucan, 2013. "The Interest Rate Channel in Turkey: An Investigation with Kalman Filter Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 3(4), pages 874-884.
    2. Utku ALTUNÖZ, 2018. "Investigating the Presence of Fisher Effect for the China Economy," Sosyoekonomi Journal, Sosyoekonomi Society, issue 26(35).
    3. Basse, Tobias & Wegener, Christoph, 2022. "Inflation expectations: Australian consumer survey data versus the bond market," Journal of Economic Behavior & Organization, Elsevier, vol. 203(C), pages 416-430.
    4. Ibrahim Arisoy, 2013. "Testing for the Fisher Hypothesis under Regime Shifts in Turkey: New Evidence from Time-Varying Parameters," International Journal of Economics and Financial Issues, Econjournals, vol. 3(2), pages 496-502.
    5. Somayeh Madadpour & Mohsen Asgari, 2019. "The puzzling relationship between stocks return and inflation: a review article," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 66(2), pages 115-145, June.
    6. A. Hatemi-J, 2011. "A re-examination of the Fisher effect using an alternative approach," Applied Economics Letters, Taylor & Francis Journals, vol. 18(9), pages 855-858.
    7. Yuki Toyoshima & Shigeyuki Hamori, 2011. "Panel cointegration analysis of the Fisher effect: Evidence from the US, the UK, and Japan," Economics Bulletin, AccessEcon, vol. 31(3), pages 2674-2682.

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