Abstract
This paper asks ‘How false is the Fisher hypotheis?’ Previous work has asked ‘Is the Fisher hypothesis true?’ The framework here characterizes the specification error in the the Fisher equation as ‘model noise’ following Durlauf and Hall [1988, 1989a, 1989b]. The noise provides a metric for the specification error. For the post-war period to October 1979, the variance of the noise is small, while, after that date it is apparently large. That is, using a method that contains many previous tests of the Fisher effect in explaining nominal in explaining nominal interest rate movements. Mishkin [1991] has criticized this consensus as reflection a common stochastic trend in inflation and nominal interest rates prior to October 1979. The test here is immune to this criticism as I use the ex post real interest rate as the regressand and show that, at least prior to October 1979, it obeys a sationary process.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
