An Empirical Examination of the Fisher Effect in Australia

25 Pages Posted: 25 May 2006

See all articles by Frederic S. Mishkin

Frederic S. Mishkin

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

John A. Simon

Reserve Bank of Australia - Economic Research

Date Written: April 1995

Abstract

This paper analyzes the Fisher effect in Australia. Initial testing indicates that both interest rates and inflation contain unit roots. Furthermore, there are indications that the variables have non-standard error processes. To overcome problems associated with this and derive the correct small sample distributions of test statistics we make use of Monte Carlo simulations. These tests indicate that while a long-run Fisher effect seems to exist there is no evidence of a short-run Fisher effect. This suggests that, while short-run changes in interest rates reflect changes in monetary policy, longer-run levels indicate inflationary expectations. Thus, the longer-run level of interest rates should not be used to characterize the stance of monetary policy.

Suggested Citation

Mishkin, Frederic S. and Simon, John A., An Empirical Examination of the Fisher Effect in Australia (April 1995). NBER Working Paper No. w5080, Available at SSRN: https://ssrn.com/abstract=225858

Frederic S. Mishkin (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

John A. Simon

Reserve Bank of Australia - Economic Research ( email )

GPO Box 3947
Sydney, NSW 2001
Australia

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