Does the Fisher effect apply in Australia?

Abstract

The Fisher hypothesis claims that changes in the expected inflation rate will be fully reflected in nominal interest rates, and hence that real interest rates will remain constant over time. Evidence with Australian data from 1965 to 1990 suggests that the Fisher effect does not hold in the long-run. Analysis is performed using recently developed econometric techniques which take account of possible nonstationarity in the date. Attention is also given to the effects of financial market deregulation on interest rates.