Fisher Effect Validity in Turkey; an Analysis on Causality Approach

Ferhat Şirin Sökmen, Yunus Açcı, İzzet Taşar

Abstract


The relation of the Nominal interest rate and inflation rate is a hot topic in the last decades for all economies. When that relation holds in an economy, that fact will be a very important tool for the Central Banks while implementing monetary policies against inflation. While Central Banks use that advantage, the most important tool should be considered as the policy interest rate. Fisher (1930) hypothesis mainly argues the fact that, the real interest rate is constant and the nominal and expected inflation move parallel. In that analysis, the Fisher (1930) hypothesis is tested via two variables; consumer policy interest rates and consumer price index. The period in the analysis covers a period from 1999:M11to 2016:M1. In the empirical methodology Dickey-Fuller (1979, 1981) unit root test and Hacker and Hatemi-J (2006) Granger Causality Tests will be employed. Test results suggest the validity of Fisher hypothesis for Turkey in the selected period.

Keywords: Fisher Effect, Inflation, Interest Rates, Causality

 

JEL classifications: C22, E43, E58

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