Empirical analysis of fisher hypothesis for the period following the inflation targeting strategy in Turkey
Keywords:
Fisher Hypothesis, Inflation Rates, Nominal Interest Rates, Co-integration, Structural BreaAbstract
In this study, the validity of the Fisher hypothesis in Turkey was investigated through the analytical method of time series with structural breaks for the period 2002:01 to 2016:08. A long-run relationship between short-term nominal interest rates and inflation rates has been achieved in the results of Maki (2012) co-integration test with the multiple structural breaks. The results of estimating the co-integration coefficients using the Dynamic Ordinary Least Squares (DOLS) method show that a unit increase in the inflation rates increases the nominal interest rates less than one. In the Vector Error Correction Model (VECM) results, a one-way causality relationship from short term inflation rates to nominal interest rates has been determined. The results of the analysis show that the weaker form of Fisher effect is valid in the review period in Turkey. In this context, the monetary policies applied following the inflation targeting period in Turkey may be said to be partially effective on real interest rates.
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