NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

An Empirical Examination of the Fisher Effect in Australia

Frederic S. Mishkin, John Simon

NBER Working Paper No. 5080 (Also Reprint No. r2137)
Issued in April 1995
NBER Program(s):   EFG   ME

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.

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Document Object Identifier (DOI): 10.3386/w5080

Published: Economic Record, 71, September1995, pp.227-239.

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