Unveiling the Neo-Fisher Effect: Evidence from Pakistan

Abstract

This study aims to examine the relationship between interest rates and inflation in Pakistan, specifically considering the Fisher effect and the non-Fisher effect. The ongoing debate regarding whether raising interest rates contributes to higher inflation rather than effectively controlling it has motivated our research. To investigate this, we utilize time-varying vector auto-regressive and Granger causality tests. Our findings reveal the significance of the neo-Fisher effect, particularly from 2015 onwards, compared to the traditional Fisher effect in Pakistan.