Testing the Fisher hypothesis in the G-7 countries using I(d) techniques

Abstract

© 2019 The Authors. This paper revisits the Fisher hypothesis concerning the determination of real rates by estimating fractional integration and cointegration models for nominal interest rates and expected inflation in the G7 countries. Two sets of results are obtained under the alternative assumptions of white noise and Bloomfield (1973) autocorrelated errors respectively. The univariate analysis suggests that the differencing parameter is higher than 1 for most series in the former case, whilst the unit root null cannot be rejected for the majority of them in the latter case. The multivariate results imply that there exists a positive relationship, linking nominal interest rates to inflation; however, there is no evidence of the full adjustment of the former to the latter required by the Fisher hypothesis.Ministerio de Ciencia y Tecnología (ECO2017-85503-R)