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Frederick H Wallace
''Testing for a nonlinear Fisher relationship''
( 2012, Vol. 32 No.1 )
Empirical evidence regarding the Fisher effect is mixed. One reason may be a nonlinear adjustment process in the real interest rate. The nonlinear unit root test proposed by Sollis, Leybourne, and Newbold (Journal of Money, Credit, and Banking 34: 686-700, 2002) is used to test for stationarity of the U.S. real interest rate over the 1934:01-2011:02 period and selected subperiods. The unit root null in the real rate of interest can be rejected over the full sample, evidence of a Fisher effect. Weaker evidence of a Fisher relation is found in the subsample for 1934:01-1959:12 for which the unit root null can be rejected for one measure of the real interest rate. However, there is no indication of a Fisher effect for subperiods starting in 1960 or later. A conjecture is that temporal aggregation of the interest rate data may explain the different results, but the findings are also consistent with other explanations.
Keywords: Fisher effect, nonlinear unit root, U.S. real interest rate
JEL: C2 - Single Equation Models; Single Variables: General
E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
Manuscript Received : Aug 30 2011 Manuscript Accepted : Mar 04 2012

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