On the Gibson Paradox

9 Pages Posted: 3 Mar 2004

See all articles by Apostolos Serletis

Apostolos Serletis

University of Calgary - Department of Economics

George Zestos

Christopher Newport University

Abstract

This paper uses recent developments in the theory of nonstationary regressors to investigate empirical relationships previously taken to support the Gibson paradox, using quarterly data over the 1957:1 - 1994:4 period on nominal interest rates and prices for eight European Union countries - Belgium, Denmark, England, France, Germany, Ireland, Italy, and The Netherlands. Using the methodology suggested by Kydland and Prescott, it is shown that the (relevant) cyclical nominal interest rate-price level contemporaneous correlations are weak, thereby punching a hole in the Gibson paradox. Evidence is also presented, based on the integration properties of the data, that standard Gibson paradox regressions are spurious.

Suggested Citation

Serletis, Apostolos and Zestos, George, On the Gibson Paradox. Review of International Economics, Vol. 7, pp. 117-125, February 1999. Available at SSRN: https://ssrn.com/abstract=468926

Apostolos Serletis (Contact Author)

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403 220-4091 (Phone)
403 282-5262 (Fax)

George Zestos

Christopher Newport University ( email )

Newport News, 23606
United States
804-594-7808 (Phone)
804-594-7808 (Fax)

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