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What Fisher Knew About His Relation, We Sometimes Forget

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  • Taner Yigit
  • Neil Arnwine

Abstract

Expected consumption growth increases the real interest rate as one tries to smooth consumption over time. We demonstrate that placing it in the Fisher relation 1) is consistent with the Euler equation governing the purchase of nominal bonds, 2) explains observed procyclicality of the real interest rate, 3) is supported empirically, and 4) provides an alternative method for estimating the consumer's degree of relative risk aversion.
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  • Taner Yigit & Neil Arnwine, 2007. "What Fisher Knew About His Relation, We Sometimes Forget," Working Papers 0707, Department of Economics, Bilkent University.
    • Handle: RePEc:bil:wpaper:0707
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    References listed on IDEAS

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    1. Joakim Westerlund, 2008. "Panel cointegration tests of the Fisher effect," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(2), pages 193-233.
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