Cross-Country Evidence on the Ability of the Nominal Interest Rate to Predict Inflation
Imad A. Moosa
Monash University; La Trobe University - School of Economics and Finance
La Trobe University
Japanese Economic Review, Vol. 53, pp. 478-495, 2002
This paper examines the viability of using short-term interest rates to forecast inflation as implied by the Fisher hypothesis. A major problem with this approach lies in the implicit assumptions that the real interest rate is constant and that the relationship between inflation and interest rate does not change over time. We demonstrate, using quarterly data for four OECD countries, that by relaxing these assumptions and allowing for seasonality in the inflation rate it is possible to obtain a model with a high degree of forecasting accuracy and efficiency.
Number of Pages in PDF File: 18
JEL Classification: C22, C52, E31Accepted Paper Series
Date posted: February 10, 2003
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