Abstract
This paper reports tests of Carmichael and Stebbing's (1983) ‘inverted Fisher hypothesis’ that it is the real rather than the nominal interest rate which adjusts to changes in the expected inflation rate. Unlike the earlier analysis, the results presented here are based on a properly specified estimating equation derived from a short-run open-economy macro model. The results support the inverted Fisher hypothesis in the short-run but indicate that there is some overshooting of the real interest rate so that after four quarters about 75% of the effect of an expected inflation change is reflected in real rates while the remainder leads to an increase in the nominal rate.
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.
