Open Access
Subscription Access
Open Access
Subscription Access
An Empirical Analysis of Fisher Effect: “A Case of Pakistan”
Subscribe/Renew Journal
This document endeavors to verify the validity of the Fisher Hypothesis (FH) in the case of Pakistan to investigate the long-term relationship between the interest rate and the inflation rate by applying co-integration Granger causation link. Fisher hypothesis has serious implications for the debtor and the lender in an inflation economy at risk because inflation expectations convince the nominal interest rate. Furthermore, the effectiveness of monetary policy and efficiency in the banking sector has been direct in the long-term relationship between the nominal interest rate and the expected inflation rate. The analysis clearly shows the failure of the interest rate as an advance on inflation and as a predictor of inflation. Therefore, the document recommends innovation and financial engineering for a better alternative, especially in the banking sector. The document also recommends growth and support of the stock market compared to the predominant debt market.
Keywords
- Bonham, C. S. (1991), ‘Correct Cointegration Test of the Long Run Relationship Between Nominal Interest and Inflation’, Applied Economics 23, 1487–1492.
- Bullard, J.B. 1999. Testing long-run monetary neutrality propositions: Lessons from the recent research. Federal Reserve Bank of St. Louis Review 81, 57-77.
- Carmichael, J. and Stebbing, P. W. (1983), ‘Fisher’s Paradox and the Theory of Interest’, American Economic Review 73, 619–630.
- Crowder, William (1997). The long-run Fisher relation in Canada. Canadian Journal of Economics, 30 4b (Nov 1997), 1124-1142.
- Engle, R. F., Granger, C. W., (1987). Cointegration and error correction: Representation, estimation and testing. Econometrica 55, 251-276.
- Fisher, I., 1930. The Theory of Interest. New York: Macmillan. Garcia, M.G.P., 1993. The Fisher effect in a signal extraction framework: The recent Brazilian experience. Journal of Development Economics. 41, 1:71-93.
- Fisher; John J. Seater (1993). Long-Run Neutrality and Superneutrality in an ARIMA Framework Mark, The American Economic Review, Vol. 83, No. 3. (Jun., 1993), pp. 402-415.
- Graham, F. C. (1988), ‘The Fisher Hypothesis: A Critique of Recent Results and Some New Evidence’, Southern Economic Journal 54, 961–968.
- Harris, R., 1995. Using cointegration analysis in econometric modelling. London: Prentice Hall.
- Krugman, P. R and Obstfeld, M, 2003 International Economics: Theory and Policy. Addison Wesley, 6th edition.
- Kandil, M and Mirazaie, I (2005).The effects of exchange rate fluctuations, college of business, Tennessee state university.
- Mishkin, F. S. (1992), ‘Is the Fisher Effect for Real? A Reexamination of the Relationship between Inflation and Interest Rates’, Journal of Monetary Economics 30, 195–215.
- Serletis, A. and Zisimos Koustas (1998). International Evidence on the Neutrality of Money, . Journal of Money, Credit and Banking 30, 1-25.
- Peek, J. (1982), ‘Interest rates, Income Taxes and Anticipated Inflation’, American Economic Review 72, 980–991.
- Pelaez, R. F. (1995), ‘The Fisher Effect: Reprise’, Journal of Macroeconomics 17, 333–346.
- Rose, A. K. (1988), ‘Is the Real Interest Rate Stable’?, Journal of Finance 43, 1095– 1112.
- Wooldridge, J. M., 2003. Introductory Econometrics: A Modern Approach. Southwestern.
Abstract Views: 271
PDF Views: 1