Fisher hypothesis: UK evidence over a century

Abstract

Using annual data over a long time horizon from 1900 to 2000 for the UK, this study finds the existence of a Fisher relation via Johansen cointegration tests. The cointegrating relationship between the two variables suggests a significant long-run equilibrium with a positive coefficient of more than one during the stated period.

Acknowledgements

This paper builds on the first author's unpublished paper entitled ‘The Fisher Relation Revisited: Evidence from 1885–1914 Britain’, presented at AMEX on 10 June 1999 (with N. Ferguson). We are grateful to N. Ferguson for having provided the historical time series data. All errors, however, are our own.

Notes

¹ See for instance Barsky (1987), Crowder and Hoffman (1996), Evans and Lewis (1995), Mishkin (1992), and Granville and Rockinger (1997). For a survey on the relationship between real interest rates and real macroeconomic activity, see Taylor (1999).

² See Ferguson (2001): The Money Printers, pp. 142–168.

³ Results are available upon request.