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ESTIMATING THE FISHER EFFECT AND THE STOCHASTIC MONEY GROWTH PROCESS
Author(s) -
HUTCHISON MICHAEL M.,
KEELEY MICHAEL C.
Publication year - 1989
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1989.tb00779.x
Subject(s) - economics , inflation (cosmology) , fisher hypothesis , econometrics , interest rate , monetary policy , real interest rate , monetary economics , physics , theoretical physics
This paper demonstrates that a change in the stochastic process generating money can alter the relationships between money and inflation and between inflation and interest rates. The extent to which inflation is forecastable is shown to depend significantly on the extent to which money is forecastable. Thus, the greater the persistence and forecastability of money, the greater the likelihood of observing a statistically significant Fisher effect. US. data over the 1953–86 period are used to demonstrate that instability in the Fisher effect coincides with changes in the stochastic process generating money. There is a significantly stronger Fisher effect during a subsample in which money—and hence inflation—are more predictable.