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Abstract
The Fisher Effect (FE) is of fundamental importance in financial markets. The majority of previous studies have not managed to obtain the expected one-for-one reaction of the nominal interest rate to the inflation rate. The aim of this article is to reinvestigate the FE for the USA and the UK using a case-wise bootstrap approach developed by Hatemi-J and Hacker (2005). This method is robust to nonnormality or heteroscedasticity and it is used to calculate and test the statistical significance of the coefficients. The results support a tax-adjusted FE in the presence of a structural break.
Notes
1Peso problem refers to a situation in which a security that has displayed great stability over a long period suddenly and unexpectedly collapses.
2A similar approach is utilized by Crowder and Wohar (Citation1999).
3For an international version of the Fisher effect, see Hatemi-J (Citation2009).
4The Hatemi-J and Hacker (Citation2005) method is not described here to save space. The interested reader is referred to the original paper for a description of the underlying methodology.
5Unit-root tests showed that each variable is I(1). Gregory–Hansen tests showed that there is cointegration in each case.