Analysis of Fisher Effects between Nominal Interests and Inflation

DOI

10.2991/aebmr.k.220603.055How to use a DOI?

Keywords

nominal rate; inflation; fisher effect; time series

Abstract

The interest rate is the borrowing price in the capital market, while the real interest rate is the interest rate level after deducting the price factor from the nominal interest rate. The real interest rate not only affects the savings, consumption and investment decisions of micro subjects, but also has important reference value for asset pricing in the capital market and the formulation of fiscal and monetary policies in the macro economy. This study investigates correlation between nominal rate of interest and rate of inflation and tests the fisher effect in China based on data from 1978 to 2020 [9]. Because the equation of fisher effect is a simple linear equation, linear regression is used to fit data. After that, time series stationarity test is used to judge whether the regression is meaningful, followed by cointegration test and Granger causal relation test against each macroeconomic variable respectively. We consulted the research results of other people and found a large number of empirical studies failed to reach a consistent conclusion. In fact, the phenomenon is known as “Fisher Effect Paradox”. Although it’s hard to reach consistent conclusion, fisher effect does explain the relationship between interest rate and inflation to some degree. It’s still a good theory to analyse macroeconomic. On the one hand, the rise of nominal interest rate is caused by the rise of inflation rate; on the other hand, it is the result of the central bank’s loose monetary policy. Therefore, the rise and fall of nominal interest rate is not exactly the same as loose or tight monetary policy.

Copyright

© 2022 The Authors. Published by Atlantis Press International B.V.

Open Access

This is an open access article distributed under the CC BY-NC 4.0 license.

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TY  - CONF
AU  - Ying Zhong
PY  - 2022
DA  - 2022/07/01
TI  - Analysis of Fisher Effects between Nominal Interests and Inflation
BT  - Proceedings of the 2022 2nd International Conference on Enterprise Management and Economic Development (ICEMED 2022)
PB  - Atlantis Press
SP  - 337
EP  - 341
SN  - 2352-5428
UR  - https://doi.org/10.2991/aebmr.k.220603.055
DO  - 10.2991/aebmr.k.220603.055
ID  - Zhong2022
ER  -