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An Empirical Examination of the Fisher Effect in Australia *
Author(s) -
MISHKIN FREDERIC S.,
SIMON JOHN
Publication year - 1995
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1995.tb01889.x
Subject(s) - fisher hypothesis , econometrics , inflation (cosmology) , economics , interest rate , monte carlo method , sample (material) , international fisher effect , statistical hypothesis testing , short run , monetary policy , exact test , statistics , real interest rate , mathematics , macroeconomics , physics , chemistry , chromatography , theoretical physics
This paper analyzes the Fisher effect in Australia. Initial testing indicates that both interest rates and inflation contain unit roots. Furthermore, there are indications that the variables have non‐standard error processes. To overcome problems associated with this and derive the correct small sample distributions of test statistics we make use of Monte Carlo simulations. These tests indicate that while a long‐run Fisher effect seems to exist, there is no evidence of a short‐run Fisher effect. This suggests that, while short‐run changes in interest rates reflect changes in monetary policy, longer run levels indicate inflationary expectations. Thus, the longer run level of interest rates should not be used to characterize the stance of monetary policy.