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The Long-Run Relationship between Nominal Interest Rates and Inflation of the Asian Developing Countries

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  • Said, Rasidah

    (Department of Finance Faculty of Business Management University Kebangsaan Malaysia 43600 UKM bangi selangor Darul Ehsan)

  • Janor, Hawati

    (Department of Finance Faculty of Business Management University Kebangsaan Malaysia 43600 UKM bangi selangor Darul Ehsan)

Abstract

The relationship between nominal interest rates and inflation in developed countries and the G7 countries have been well documented. However, such relationship in relatively less developed Asian countries is less clear and similar studies that consider a different financial markets may have different results. Therefore, this paper uses data for five Asian developing counntries namely Malaysia, Thailand, Indonesia, South Korea and Philippines to examine the Fisherian link between inflation and long-term nominal inetrest rates. In doing so, the Augmented-Dickey Fuller Test and Engle-Granger are applied to investigate the stationary and cointegration properties of the variables. The results indicate unit root properties for the level of interest rates and inflation for all five countries, however there is no cointegration between both variables for all the countries except for Indonesia. The findings for these four coutries are consistent with other findings who argue that the Fisher effect does not hold for countries other than the United States.

Suggested Citation

  • Said, Rasidah & Janor, Hawati, 2001. "The Long-Run Relationship between Nominal Interest Rates and Inflation of the Asian Developing Countries," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 35, pages 3-11.
    • Handle: RePEc:ukm:jlekon:v:35:y:2001:i::p:3-11
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    References listed on IDEAS

    as
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    3. Mishkin, Frederic S., 1992. "Is the Fisher effect for real? : A reexamination of the relationship between inflation and interest rates," Journal of Monetary Economics, Elsevier, vol. 30(2), pages 195-215, November.
    4. Gultekin, N Bulent, 1983. "Stock Market Returns and Inflation Forecasts," Journal of Finance, American Finance Association, vol. 38(3), pages 663-673, June.
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