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An Empirical Investigation of Structural Breaks in the Ex Ante Fisher Effect

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  • Olekalns, N.

Abstract

This paper investigates the relationship between expected inflation and the nominal interest rate using Australia data. Recently developed time series techniques are used that allow for estimation across different regimes where the timing and number of structural breaks are not known a priori. The results are consistent with the existence of significant struc- tural breaks in the relation between interest rates and inflation, with there being some evidence that these are associated with changes in taxation. After allowing for the structural breaks, it appears that interest rates fail to fully reflect anticipated inflation.

Suggested Citation

  • Olekalns, N., 2001. "An Empirical Investigation of Structural Breaks in the Ex Ante Fisher Effect," Department of Economics - Working Papers Series 786, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:786
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    File URL: http://www.economics.unimelb.edu.au/downloads/wpapers-00-01/786.pdf
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    References listed on IDEAS

    as
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    4. Param Silvapulle & Brett Inder, 1992. "Does the Fisher Effect Apply in Australia?," Working Papers 1991.02 EDIRC Provider-In, School of Economics, La Trobe University.
    5. Crowder, William J & Hoffman, Dennis L, 1996. "The Long-Run Relationship between Nominal Interest Rates and Inflation: The Fisher Equation Revisited," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(1), pages 102-118, February.
    6. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    7. Gregory, Allan W & Hansen, Bruce E, 1996. "Tests for Cointegration in Models with Regime and Trend Shifts," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(3), pages 555-560, August.
    8. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
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    Cited by:

    1. Jesús Clemente & María Dolores Gadea & Antonio Montañés & Marcelo Reyes, 2017. "Structural Breaks, Inflation and Interest Rates: Evidence from the G7 Countries," Econometrics, MDPI, vol. 5(1), pages 1-17, February.

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    More about this item

    Keywords

    INFLATION ; INTEREST RATE ; TIME SERIES;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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