The Inverted Fisher Hypothesis Inflation Forecastability and Asset Substitution"
This paper examines the implications of inflation persistence for the inverted Fisher hypothesis that nominal interest rates do not adjust to inflation because of a high degree of substitutability between money and bonds. It is emphasized that the substitutability between nominal assets and capital...
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| Format: | eBook |
| Language: | English |
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Washington, D.C.
International Monetary Fund
2000
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| Series: | IMF Working Papers
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| Collection: | International Monetary Fund - Collection details see MPG.ReNa |
| Summary: | This paper examines the implications of inflation persistence for the inverted Fisher hypothesis that nominal interest rates do not adjust to inflation because of a high degree of substitutability between money and bonds. It is emphasized that the substitutability between nominal assets and capital renders the hypothesis inconsistent with the data when inflation persistence is high. Using a switching regression model, the analysis allows the reflection of inflation in interest rates to vary according to the degree of inflation persistence or forecastability. The hypothesis is supported by U.S. data only when inflation forecastability is below a certain threshold |
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| Physical Description: | 36 pages |
| ISBN: | 9781451859850 |