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Panel cointegration tests of the Fisher effect

Westerlund, Joakim LU (2008) In Journal of Applied Econometrics 23(2). p.193-233
Abstract
Most empirical evidence suggests that the Fisher effect, stating that inflation and nominal interest rates should cointegrate with a unit slope on inflation, does not hold, a finding at odds with many theoretical models. This paper argues that these results can be attributed in part to the low power of univariate tests, and that the use of panel data can generate more powerful tests. For this purpose, we propose two new panel cointegration tests that can be applied under very general conditions, and that are shown by simulation to be more powerful than other existing tests. These tests are applied to a panel of quarterly data covering 20 OECD countries between 1980 and 2004. The evidence suggest that the Fisher effect cannot be rejected... (More)
Most empirical evidence suggests that the Fisher effect, stating that inflation and nominal interest rates should cointegrate with a unit slope on inflation, does not hold, a finding at odds with many theoretical models. This paper argues that these results can be attributed in part to the low power of univariate tests, and that the use of panel data can generate more powerful tests. For this purpose, we propose two new panel cointegration tests that can be applied under very general conditions, and that are shown by simulation to be more powerful than other existing tests. These tests are applied to a panel of quarterly data covering 20 OECD countries between 1980 and 2004. The evidence suggest that the Fisher effect cannot be rejected once the panel evidence on cointegration has been taken into account. Copyright (C) 2007 John Wiley & Sons, Ltd. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
in
Journal of Applied Econometrics
volume
23
issue
2
pages
193 - 233
publisher
John Wiley & Sons
external identifiers
  • wos:000254774100003
  • scopus:51449123402
ISSN
0883-7252
DOI
10.1002/jae.967
language
English
LU publication?
yes
id
600d1808-7aa5-473e-9bd6-567d3fa72d19 (old id 1207224)
date added to LUP
2008-08-28 13:19:02
date last changed
2017-10-22 03:38:56
@article{600d1808-7aa5-473e-9bd6-567d3fa72d19,
  abstract     = {Most empirical evidence suggests that the Fisher effect, stating that inflation and nominal interest rates should cointegrate with a unit slope on inflation, does not hold, a finding at odds with many theoretical models. This paper argues that these results can be attributed in part to the low power of univariate tests, and that the use of panel data can generate more powerful tests. For this purpose, we propose two new panel cointegration tests that can be applied under very general conditions, and that are shown by simulation to be more powerful than other existing tests. These tests are applied to a panel of quarterly data covering 20 OECD countries between 1980 and 2004. The evidence suggest that the Fisher effect cannot be rejected once the panel evidence on cointegration has been taken into account. Copyright (C) 2007 John Wiley & Sons, Ltd.},
  author       = {Westerlund, Joakim},
  issn         = {0883-7252},
  language     = {eng},
  number       = {2},
  pages        = {193--233},
  publisher    = {John Wiley & Sons},
  series       = {Journal of Applied Econometrics},
  title        = {Panel cointegration tests of the Fisher effect},
  url          = {http://dx.doi.org/10.1002/jae.967},
  volume       = {23},
  year         = {2008},
}