The Fisher Hypothesis and the Forecastability and Persistence of Inflation

Robert B. Barsky

NBER Working Paper No. 1927
Issued in May 1986
NBER Program(s):International Trade and Investment, International Finance and Macroeconomics

For the period 1860 to 1939, the simple correlation of the U.S. commercial paper rate with the contemporaneous inflation rate is -.17. The corresponding correlation for the period 1950 to 1979 is .71. Inflation evolved from essentially a white noise process in the pre-World War I years to a highly persistent, nonstationary ARIMA process in the post-1960 period. I argue that the appearance of an ex post Fisher effect for the first time after 1960 reflects this change in the stochastic process of inflation, rather than a change in any structural relationship between nominal rates and expectedi nflation. I find little evidence of inflation non-neutrality in data from the gold standard period.This contradicts the conclusion of a frequently cited study by Lawrence Summers, who examined the low frequency relationship between inflation and interest rates using band spectrum regression. Deriving and implementing a frequency domain version of the Theil misspecification theorem, I find that neither high frequency nor low frequency movements in gold standard inflation rates were forecastable. Thus even if nominal rates responded fully to expected inflation, one would expect to find the zero coefficient obtained by Summers.

download in pdf format
   (250 K)

download in djvu format
   (189 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w1927

Published: Barsky, Robert B. "The Fisher Hypothesis and the Forecastibility and Persistence of Inflation," Journal of Monetary Economics, Jan. 1987. citation courtesy of

Users who downloaded this paper also downloaded* these:
Mishkin w3632 Is the Fisher Effect for Real? A Reexamination of the Relationship Between Inflation and Interest Rates
Summers w0836 The Nonadjustment of Nominal Interest Rates: A Study of the Fisher Effect
Sargent The Ends of Four Big Inflations
Shiller w5539 Why Do People Dislike Inflation?
Shiller Why Do People Dislike Inflation?
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us