The Fisher Hypothesis and Inflation Persistence: Evidence from Five Major Industrial Countries

28 Pages Posted: 15 Feb 2006

See all articles by Wensheng Peng

Wensheng Peng

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR)

Date Written: November 1995

Abstract

This paper presents an empirical evaluation of the strength of the Fisher effect which predicts a positive relationship between the nominal interest rate and inflation in the postwar period in the five major industrial countries, utilizing recently developed time series techniques. The results suggest that the Fisher effect is stronger in France, the United Kingdom, and the United States than in Germany and Japan. It is argued that the differences in the linkage between the interest rate and the inflation rate as between the two groups of countries are reflected in the time series properties of the inflation rates, which are, in turn, partly attributable to the different extent to which monetary authorities accommodated inflationary shocks. The empirical results have a number of implications for the long-term trend in the SDR interest rate and for the financing of the Fund`s operations.

JEL Classification: E31, E43

Suggested Citation

Peng, Wensheng, The Fisher Hypothesis and Inflation Persistence: Evidence from Five Major Industrial Countries (November 1995). IMF Working Paper No. 95/118, Available at SSRN: https://ssrn.com/abstract=883264

Wensheng Peng (Contact Author)

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR) ( email )

3 Garden Road, 8th Floor
Hong Kong
China

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