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Valerie Mignon and Sandrine Lardic
''Fractional cointegration between nominal interest rates and inflation: A re-examination of the Fisher relationship in the G7 countries''
( 2003, Vol. 3 No.14 )
According to the Fisher hypothesis, the nominal interest rate is equal to the real interest rate, plus expected inflation. Results concerning the empirical validity of this hypothesis are not unanimous. These contradictions may be due to the fact that the usual concept of cointegration is too restrictive. We thus propose here to refer to the concept of fractional cointegration introduced by Granger (1986). We study the Fisher hypothesis by testing for the existence of a fractional cointegration relationship between nominal interest rates and inflation. Our results suggest that, for a large majority of G7 countries, such a relationship exists.
JEL: C2 - Single Equation Models; Single Variables: General
E4 - Money and Interest Rates: General
Manuscript Received : Apr 02 2003 Manuscript Accepted : Jul 02 2003

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