Fisher Effect Research Articles

The influence of monetary factors on the formation of nominal interest rates

Subject. This article examines the impact of inflation expectations and the real interest rate on the market situation in Russia within the period from 2010 to 2022. Objectives. The article aims to test the possible disputability of the assumption that if the real interest rate remains stable, then the nominal interest rate should respond to changes in inflation expectations, because according to the results of most research works, the Fisher hypothesis is not confirmed in developing countries, while for countries with developed economies this phenomenon is confirmed. Methods. For the study, I used econometric tests, as well as modeling of the effect using short-term regression with an element of error correction estimated by the least squares method. Results. The Fisher effect in the Russian market has not been confirmed, which emphasizes the specifics of the functioning of emerging markets. Conclusions and Relevance. The results of the study may be useful to financial market agents and can be used to assess the effect of the current regressors under study on the nominal yield of the Russian fixed-income securities market. The application of the results of the study can also contribute to improving the forecasting of market trends in a changing macroeconomic environment.

Russia’s Invasion of Ukraine and Implications for the Ukrainian Hryvnia and the Russian Ruble

This paper examines the interest rates, expected spot rates, and inflation rates of the Ukrainian Hryvnia (₴) to the Russian Ruble (₽). Our methodology analyzes international parity relationships, including Purchasing Power Parity (PPP) and the International Fisher Effect (IFE). Focusing on the four years from two years before Russia’s initial invasion of Ukraine on February 24, 2022, i.e., February 2, 2020 to post-conflict up to December 2023, we hypothesize that the geopolitical tensions induced by the invasion have led to significant fluctuations and high volatility of these currencies. Additionally, we propose that the economic consequences of the invasion, such as disruptions to trade and food and supply shortages, may further affect these variables by increasing domestic and international money financing, therefore triggering higher inflation rates. Our analyses indicate that spot rates predicted using international parity relationships suggest the weakening of the Ukrainian Hryvnia after the Russia-Ukraine conflict. Our findings shed light on the magnitude and direction of currency movements, providing insights into the economic ramifications of the conflict. Specifically, we aim to elucidate how the invasion has impacted the region's exchange rates and economic stability.

A multiresolution analysis of NeoFisher effects in industrialized economies: Have monetary policy dynamics being misconstrued in the west?

Central Banks in major industrialized economies have struggled to keep inflation within their target ranges since the global financial crisis. The periods of missing inflation and deflation experienced in the post-crisis era have led to doubts about the traditional Fisher effect as a crucial component of the policy reaction function. We explore the NeoFisherian theory, which suggests an alternative causal relationship between the policy rate and inflation. We focus on the USA, UK, and EU and apply wavelet coherence analysis to examine the time–frequency lead–lag comovements on data spanning from January 2007 to March 2023. Our findings indicate increasing NeoFisherian dynamics, notably post-2013 taper tantrum, implying that Central Banks in industrialized economies have misunderstood monetary policy dynamics.

IS THERE A CHICKEN-AND-EGG RELATIONSHIP BETWEEN INTEREST AND INFLATION RATES FOR THE TURKISH CASE?

There is still a hot debate about the causal relationship between interest and inflation rates. On the one hand, through Fisher Effect, it is expected that inflation is the cause while the interest rate is the result. On the other hand, among policymakers in Türkiye, it is expected opposite as inflation is the result and interest rate is the cause since it is argued that inflation is the result mostly stemming from the high-interest rates constituting the high cost of the credits. However, it is strongly argued that low interest rates—which the government has lowered below inflation—rather than high interest rates are the real cause in the Turkish case. In this regard, the key purpose of the paper is to investigate the causal relationship between the interest and inflation rates for the Turkish case for the period of 2004M01-2022M03. The findings reveal that there is a bi-directional Granger causality relationship between the interest rate and the inflation rate for the Turkish case for the relevant period. This result promotes the chicken-and-egg relationship between interest and inflation rates.

Inter-Sectoral Linkages in Nigeria: Evidence from Agriculture and Manufacturing Sectors

The main purpose of the research was to establish determinants of commercial bank growth. The specific objectives of the study was to; determine the effect of default rate on loans on growth of commercial banks, determine the effect of level of interest income on growth of commercial banks and to establish the effect of forex transaction volume on growth of commercial banks listed in Nairobi Securities Exchange. The study was guided by the interest rate theory, international fisher effect theory and time preference theory. Using multiple regression analysis, we found support for the proposition that loan default rate, interest rate and forex transaction had a significant effect on growth of commercial banks. Keywords: Growth of commercial bank, default rate on loans, interest income and forex transaction volume DOI : 10.7176/DCS/9-1-06

Unveiling the Neo-Fisher Effect: Evidence from Pakistan

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.

Dynamics of the Relationship between Inflation and Interest Rates: Testing For the Fisher Hypothesis with Structural Break(S) and Parameter Stability

In the present study, the Fisher hypothesis that considers a one-to-one and unidirectional relationship between inflation and interest rates was tested using a quarterly frequency dataset for E-7 countries. Due to the fact that parameter constancy was not established in the study, Arai & Kurozumu and Kejriwal test techniques were used and it was found that Fisher effect was valid in weak and strong forms for country groups excluding Russia. At the same time, due to the fact that coefficient indicator modulus observed in slope parameters after structural changes had negative values, contractionary monetary policies in these economies where inflation targeting strategies were implemented resulted in weakening of the relationship between inflation and interest rate variables.

Application and Limitation of Fisher Model

This essay explores the Fisher Effect hypothesis, which posits a direct relationship between nominal interest rates and expected inflation. It delves into the Fisher model's concept, its implications, and its significance in economics. The research question of the model's validity and applicability is examined through a review of current research findings, revealing mixed results. The essay highlights the diverse applications of the Fisher model in monetary policy, finance, and decision-making across various economic sectors. However, it also discusses the model's limitations, including its assumptions, data quality concerns, short-term focus, and neglect of risk premiums. Future research directions are proposed to enhance the model's accuracy and applicability. In conclusion, this essay emphasizes the importance of recognizing both the strengths and weaknesses of the Fisher Effect and the need for ongoing refinement in its application to navigate the complexities of the economic landscape.

Impact of Inflation on Savings and Investments of Cooperative Societies in Awka South Local Government Area

This study is to ascertain the impact of inflation on savings and investments of cooperative societies in Awka South local government area. The researcher set to determine the effect of inflation on member’s savings, member’s investment and roles of cooperatives in addressing issue of inflation in the study area. To guide this study, three research questions and two hypotheses were formulated in line with the objectives of the study. The study was anchored on International Fisher Effect Theory by Irving Fisher (1930). The study employed a descriptive survey design, the instrument for data collection was questionnaire constructed for the study and calibrated with the 5-point Likert ordinal measurement and rating scale. The population of the study was 268 selected cooperatives members in Awka South local Government Area of Anambra State. The sample size used was 161 cooperative members using Taro Yamane formular. Adopting a judgmental sampling technique, 161 questionnaires was distributed, and 127 copies of questionnaire were completed and returned and used for this study which represent 78.9% response rate. Research hypotheses were tested using Z-Test. The finding revealed that there is a significant effect of inflation on member’s savings in the study area, had a p-value 0.0107 (p < 0.05). With a p-value 0.0170 (p < 0.05) indicating there is a significant effect of inflation on member’s investment in the study area. In view of the findings, the study therefore, recommends that stakeholders and cooperative societies in the study area carefully consider and actively manage the impact of inflation on members’ savings. Implementing strategies such as diversified investments, inflation-adjusted interest rates, and financial education initiatives can help mitigate the adverse effects of inflation, ensuring the preservation and growth of members’ savings over time. Cooperative societies should adopt proactive measures to safeguard and enhance investment portfolios. Strategies may include diversifying investments across asset classes, regularly reviewing and adjusting investment policies in response to inflationary trends and providing members with financial literacy programs to empower them in making informed investment decisions resilient to the challenges posed by inflation and also, to sustain and enhance these initiatives.

Inflation, Interest Rates and the Amount of Money Supply, Their Impact on Fluctuations of Rupiah Exchange Rate to the Us Dollar During the Pandemic of Covid-19

This study aims to determine and analyze the effect of inflation, interest rates and money supply on fluctuations of rupiah exchange rate to the United States dollar during the pandemic of Covid-19. The inflation variable is analyzed using purchasing power parity theory based on differences in inflation of two countries, while the interest rate variable uses the International Fisher Effect Theory. The money supply variable is represented by M2 or the total money in circulation or in banks. The data used is secondary data for the period of January 2020 – December 2022, totaling of 36 months. Multiple linear regression, t test and F test is used to test the effect of dependent variables on independent variables simultaneously and partially, provided by Smart PLS 4.0 Software. The results showed that partially the inflation had a positive and insignificant effect on fluctuations of the rupiah exchange rate to the US dollar, the interest rate had a significant negative effect on fluctuations of the rupiah exchange rate to the US dollar, and the money supply had an insignificant negative effect on fluctuations of the rupiah exchange rate on US dollars. Simultaneously, the variables inflation, interest rates and money supply have a significant effect on fluctuations of the rupiah exchange rate to the US dollar.

The Gibson Paradox and the Fisher Effect in Advanced and Emerging Economies

The Gibson Paradox and the Fisher Effect in Advanced and Emerging Economies

Bump in energy prices and their impact on natural resources: Energy transition initiatives in OECD countries

Ecosystems and humans suffer from the over-exploitation of natural resources. A growing inequality and environmental crisis demand action, including increasing producer responsibility, extending supply chain legislation, ensuring green public procurement, and promoting circularity. Considering the roles of financial development and international trade, this paper examines whether energy prices and transitions affect natural resources in OECD countries from 1990 to 2020. Our empirical estimates are based on advanced economic methodologies, Fisher effect cointegration, slope heterogeneity, and continuously updated fully modified (CUP-FM) and bias-corrected (CUP-BC) estimators. The result indicates that the increase in energy prices and the transition to a sustainable energy system have improved natural resources. The result suggests that energy and natural resource companies are developing dynamic pricing capabilities to cope with volatility and inflation. Energy and natural resource companies believed inflation would be short-lived, protecting them from price hikes due to their value chain position. Policymakers engaged in green growth strategies should facilitate the transition to green growth. As part of the pricing process, we recommend more pricing. This recommendation does not oppose valuation studies. Rather than addressing the most fundamental issues, much effort has been put into the technical details. Research limitations and future directions are discussed.

Bootstrap Inference in Cointegrating Regressions: Traditional and Self-Normalized Test Statistics

Traditional tests of hypotheses on the cointegrating vector are well known to suffer from severe size distortions in finite samples, especially when the data are characterized by large levels of endogeneity or error serial correlation. To address this issue, we combine a vector autoregressive (VAR) sieve bootstrap to construct critical values with a self-normalization approach that avoids direct estimation of long-run variance parameters when computing test statistics. To asymptotically justify this method, we prove bootstrap consistency for the self-normalized test statistics under mild conditions. In addition, the underlying bootstrap invariance principle allows us to prove bootstrap consistency also for traditional test statistics based on popular modified OLS estimators. Simulation results show that using bootstrap critical values instead of asymptotic critical values reduces size distortions associated with traditional test statistics considerably, but combining the VAR sieve bootstrap with self-normalization can lead to even less size distorted tests at the cost of only small power losses. We illustrate the usefulness of the VAR sieve bootstrap in empirical applications by analyzing the validity of the Fisher effect in 19 OECD countries.

The relationship between school and classroom climate, and academic achievement: A meta-analysis

This study reports two independent meta-analyses on the relationship between (a) classroom climate and academic achievement; and (b) school climate and academic achievement. The analyses were based on extant correlational research studies at the K-12 level that were published between 2000 and 2020. The relationships were analyzed in terms of various moderator variables. The first dataset included 53 research studies focusing on classroom climate and academic achievement, and the second dataset included 37 research studies on school climate and academic achievement. The meta-analyses were carried out with a random effects model. Fisher's effect size was calculated for each study. Publication bias was tested with Egger's linear regression method and Duval and Tweedie's trim and fill method. We used the Q-test for moderation analyses and I2 test for heterogeneity analyses. The results revealed that the mean effect size for the relationship between classroom climate and academic achievement was small, while it was medium for the relationship between school climate and academic achievement. The effect sizes regarding classroom climate differed significantly only in terms of the academic area moderator variable, and the effect sizes regarding school climate differed in terms of school area, report type, and unit of analysis. This meta-analysis study confirmed that school climate and classroom climate are significant correlates of academic achievement, and the dataset in this study revealed a greater magnitude of relationship in favor of school climate (although a comparison is not meant in this study). This study suggests that policymakers and practitioners should invest their efforts in promoting sound school climates while maintaining an emphasis on classroom climate components, as the two types of climates are intertwined.

Interest rate, price level, and the inflation rate: Evidence from the UK during the gold standard regimes

AbstractThis paper empirically investigates the Gibson Paradox and the Fisher Effect for the UK during different metallic and non‐metallic regimes. The paper applies long‐span monthly data on the long‐term interest rate and the price index from 1790 to 1931. The ARDL cointegration is employed to study the long‐term relationship. Significant evidence is provided for the paradox during the uninterrupted gold standard era of the UK (1821–1914). We also find evidence of the paradox during the short‐term gold exchange standard era (1925–1931). Further results also confirm the Fisher Effect during the 1821–1914 period, providing some backing to its ability to explain the paradox. This is further asserted by the short‐run mutual influence between the rate of interest and the inflation rate.

Pengaruh Inflasi dan Covid 19 terhadap Pasar Uang Antar Bank Syariah di Indonesi:

This study aims to analyse the effect of inflation and Covid 19 on the Islamic interbank money market and prove the validity of the fisher effect theory on the Islamic interbank money market in Indonesia. This study uses secondary data, namely time series data from the Islamic interbank money market and Inflation in Indonesia during the period January 2018 to November 2022. Meanwhile, the model used in this study is the Error Correction Model (ECM). The results showed that simultaneously in the long term and short term, inflation and Covid 19 variables had a significant effect on the Islamic interbank money market in Indonesia. Meanwhile, partially in the long term, the inflation variable has a positive and significant effect on the Islamic interbank money market. Covid 19 variable has a negative and significant effect on the Islamic interbank money market. In the short term, the Covid 19 variable has a negative and significant effect on the Islamic interbank money market in Indonesia. This study proves the existence of fisher effect on the Islamic interbank money market in Indonesia.
 Keywords: Islamic Interbank Money Market, Fisher Effect Theory, Covid 19

A study of Fisher Effect in India.

In this paper, the relationship between nominal interest rate and inflation is analyzed based on Fisher Effect (FE) theory. As per FE theory, the difference between nominal interest rate and expected inflation is equal to real interest rate. The theory proposes that a rise in expected inflation can lead to positive impact on nominal interest rate when the real interest rate is constant. For analyzing FE, the inflation rate measures based on Core index, Wholesale Price Index (WPI) and Consumer Price Index (CPI) are considered. As per rational expectation hypothesis, the one-period-ahead inflation rate is considered as expected inflation (eInf). The interest rates (IR) associated with call money, treasury bills of 91- and 364-day maturities are considered. The study uses ARDL bounds testing approach and Granger causality test for analyzing the long-run relationship between eInf and IR. The study finds evidence for presence of cointegrating relationship between eInf and IR in India. Contrary to FE theory, the long-run relation between eInf and IR is found to be negative. The extent and significance of long-run relationship varies depending on measures of eInf and IR considered. Along with cointegration, the expected WPI inflation and interest rate measures also exhibit Granger causality in at least one direction. Although, the cointegration is not observed between expected CPI and IR, there exists Granger causality between these variables. This increasing disconnect between eInf and IR could be attributed to adoption of flexible inflation targeting framework, pursual of additional objectives by monetary authority, different sources and types of inflation, etc.

Purchasing Power Parity and International Fisher Effect Hypothesis Test: Evidence from Vietnam and 12 Major Trading Partners (2000 – 2022)

Amidst the expansion of the global economy and Vietnam's growing integration into the international arena, the country has formed substantial trade relations with a diverse range of nations across the globe. As a result, it is crucial to comprehend and study the dynamics of exchange rates, relying on the well-established theoretical frameworks of the Purchasing Power Parity (PPP) theory and the International Fisher Effect (IFE). Given the longstanding nature of these theories, the main purpose of this study is to assess the validity and applicability of the PPP theory and IFE in explaining the changes in exchange rates between Vietnam and its various trading partners. Employing a multiple linear regression approach, we investigated quarterly historical data comprising interest rates, inflation rates, and exchange rates of 12 trading partners, including the ASEAN-5, China, the U.S., Japan, South Korea, France, Canada, and Germany from Q1 2002 to Q4 2022. The results unequivocally show that neither the PPP theory nor the IFE can adequately explain the variations in the Vietnam Dong's exchange rate with respect to those of its trade partners, underlining the existence of significant theoretical deviations. Given these observations, policymakers and investors are strongly encouraged to adopt a holistic viewpoint, including a variety of indicators, and conducting additional research to make informed decisions that support long-term economic stability and growth.

Interest Rates Capping and Credit Uptake of Commercial Banks in Kenya

In 2016, Kenya enacted the Banking (amendment) Act 2016 which allowed lending interest rates charged by Commercial Banks in Kenya to be fixed at the Central Bank Rate plus a spread of 4% and deposit rates at 70% of the Central Bank Rate. Many banks protested this move since it meant reduced profitability. As a result, commercial banks introduced stringent credit qualification criteria locking out many borrowers who would have otherwise qualified for credit. Therefore, this study sought to establish how interest rate capping affects credit uptake of Commercial Banks in Kenya. The objectives of the study were; to determine the effect of capping lending interest rates, capping deposit interest rates, deposit interest rate spread on credit uptake of commercial banks in Kenya and the moderating effect of inflation risk premium on the relationship between interest rate capping and credit uptake of commercial banks in Kenya. The study was guided by four theories namely: Irving Fisher's Theory of Interest Rates, the Fisher Effect, Loan Pricing Theory and Loanable Funds Theory. The study conducted diagnostic test on multicollinearity normality test and Heteroscedasticity test. The study adopted descriptive research design. The target population for the study was all the 40 licensed commercial banks in Kenya. The sampling frame for the study was all (40) licensed commercial banks in Kenya. This study collected both primary and secondary data because both data reinforced each other. Primary data was collected using semi-structured questionnaires, while secondary data was collected from audited and released financial statements of Commercial Banks in Kenya for the period 2014–2019. The data was analyzed using multiple regressions and descriptive statistics namely: mean median, mode and standard deviation. Quantitative data was presented using tables, pie charts and bar graphs while qualitative data has been presented descriptively. The study established that while capping lending interest rates and interest rate spread had a significant effect on credit uptake of commercial banks in Kenya, capping deposit interest rates was insignificant and the relationship was significantly moderated by inflation risk premium. The study concluded that interest rate spread had the largest effect on credit uptake of commercial banks in Kenya followed by capping lending interest rates and lastly capping deposit interest rates. The study recommends that when formulating policies on interest rate capping, the Central Bank of Kenya should focus more on the lending side as compared to the deposits side. Keywords: Interest rates capping, Credit uptake, Lending interest rates, Deposit interest rates, Interest rates spread, Inflation risk premium.

The Fisher Effect in Inflation Targeting Countries: A Fourier Cointegration Analysis

The Fisher Effect in Inflation Targeting Countries: A Fourier Cointegration Analysis