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Serdar Ongan and Ismet Gocer
 
''Interest Rates, Inflation and Partial Fisher Effects under Nonlinearity: Evidence from Canada''
( 2018, Vol. 38 No.4 )
 
 
Abstract: This study aims to reexamine and reconsider the Fisher effect for Canada from a different methodological perspective. To this aim, the nonlinear ARDL model, recently introduced by Shin et al. (2014), is applied for the first time for this country between 1991M1-2018M1. This model decomposes the changes in inflation rates from one series (variable) to two new series (variables) as increases and decreases derived from the original series of inflation. Hence, it enables us to reexamine the Fisher effect in terms of increases and decreases in inflation rates separately. The empirical findings of the nonlinear model reveal that increases and decreases in inflation rates have different (asymmetric) effects on nominal interest rates. When the maturity gets shorter (longer), decreases (increases) in inflation rates affect the nominal interest rates more. Additionally, this model with its decomposed variables enables us to describe and introduce a new version of partial Fisher effects in the long-run and short-run when reconsidering the partiality of the Fisher effect.
 
 
Keywords: Fisher effect, Nonlinear and Linear ARDL models, Canadian bond rates
JEL: E4 - Money and Interest Rates: General
E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
 
Manuscript Received : Jun 29 2018 Manuscript Accepted : Oct 20 2018

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