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Asymmetric Fisher effect in inflation targeting emerging markets: evidence from quantile co-integration

Author

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  • Saban Nazlioglu
  • SinemPinar Gurel
  • Sevcan Gunes
  • Emre Kilic

Abstract

We test Fisher hypothesis in 14 inflation targeting emerging countries by quantile co-integration approach allowing asymmetric behaviour of long-run co-integration relationship. While conventional co-integration methods do not support Fisher hypothesis for any country, quantile co-integration approach confirms Fisher hypothesis in nine countries with time-varying behaviour of Fisher coefficient. Our results thereby can shed light on Fisher puzzle in inflation targeting emerging markets and provide insightful implications. The findings suggest that inflation targeting in emerging markets would lead to an asymmetric adjustment, implying heterogeneous effects of negative and positive shocks. Monetary authorities, in particular, tend to increase short-term interest rates by a larger amount during high inflation period than low inflation period.

Suggested Citation

  • Saban Nazlioglu & SinemPinar Gurel & Sevcan Gunes & Emre Kilic, 2022. "Asymmetric Fisher effect in inflation targeting emerging markets: evidence from quantile co-integration," Applied Economics Letters, Taylor & Francis Journals, vol. 29(21), pages 2007-2014, December.
    • Handle: RePEc:taf:apeclt:v:29:y:2022:i:21:p:2007-2014
    DOI: 10.1080/13504851.2021.1967859
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