[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/44987.html
   My bibliography  Save this paper

Testing an Augmented Fisher Hypothesis for a Small Open Economy: The Case of Nigeria

Author

Listed:
  • Muse, Bernard
  • Alimi, R. Santos
Abstract
This paper investigates the relationship between expected inflation and nominal interest rates in Nigeria and the extent to which the Fisher effect hypothesis holds, for the period 1970-2009. We made attempt to advance the field by testing the traditional closed-economy Fisher hypothesis and an augmented Fisher hypothesis by incorporating the foreign interest rate and nominal effective exchange rate variable in the context of a small open developing economy, such as, Nigeria. The stability of the functions was also tested by CUSUM and CUSUMSQ. Our findings tend to suggest: (i) that the nominal interest rates and expected inflation move together in the long run but not on one-to-one basis. This indicates that full Fisher hypothesis does not hold but there is a strong Fisher effect in the case of Nigeria over the period under study (ii) consistency with the international Fisher hypothesis, these domestic variables have a long run relationship with the international variables (iii) in the closed-economy context,the causality run strictly from expected inflation to nominal interest rates as suggested by the Fisher hypothesis and there is no “reverse causation.” But in the open economy context, the expected inflation and international variables contain the information that predict the nominal interest rate(iv) that only about 29 percent of the disequilibrium between long term and short term interest rate is corrected within the year. (v) finally, CUSUM test stability of the coefficients.

Suggested Citation

  • Muse, Bernard & Alimi, R. Santos, 2012. "Testing an Augmented Fisher Hypothesis for a Small Open Economy: The Case of Nigeria," MPRA Paper 44987, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:44987
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/44987/1/MPRA_paper_44987.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    2. K. M. Hawtrey, 1997. "The Fisher effect and Australian interest rates," Applied Financial Economics, Taylor & Francis Journals, vol. 7(4), pages 337-346.
    3. Muscatelli, Vito Antonio & Spinelli, Franco, 2000. "Fisher, Barro, and the Italian Interest Rate, 1845-93," Journal of Policy Modeling, Elsevier, vol. 22(2), pages 149-169, March.
    4. O Bajo-Rubio & C Diaz-Roldan & V Esteve, 2010. "Testing the Fisher effect in the presence of structural change: A case study of the UK, 1966-2007," Economic Issues Journal Articles, Economic Issues, vol. 15(2), pages 1-16, September.
    5. Frank J. Atkins & Apostolos Serletis, 2003. "Bounds Tests of the Gibson Paradox and the Fisher Effect: Evidence from Low‐Frequency International Data," Manchester School, University of Manchester, vol. 71(6), pages 673-679, December.
    6. Koustas, Zisimos & Serletis, Apostolos, 1999. "On the Fisher effect," Journal of Monetary Economics, Elsevier, vol. 44(1), pages 105-130, August.
    7. Francisco Carneiro & Jose Angelo & C. A. Divino & Carlos Rocha, 2002. "Revisiting the Fisher hypothesis for the cases of Argentina, Brazil and Mexico," Applied Economics Letters, Taylor & Francis Journals, vol. 9(2), pages 95-98.
    8. Paul Johnson, 2006. "Is it really the Fisher effect?," Applied Economics Letters, Taylor & Francis Journals, vol. 13(4), pages 201-203.
    9. Kate Phylaktis & David Blake, 1993. "The fisher hypothesis: Evidence from three high inflation economies," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 129(3), pages 591-599, September.
    10. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    11. Jeung-Lak Lee & Carolyn Clark & Sung Ahn, 1998. "Long- and short-run Fisher effects: new tests and new results," Applied Economics, Taylor & Francis Journals, vol. 30(1), pages 113-124.
    12. Garcia, Marcio G. P., 1993. "The Fisher effect in a signal extraction framework The recent Brazilian experience," Journal of Development Economics, Elsevier, vol. 41(1), pages 71-93, June.
    13. Miyagawa, Shigeyoshi & Morita, Yoji, 2002. "The Fisher Effect and The Long–Run Phillips Curve --in the case of Japan, Sweden and Italy --," Working Papers in Economics 77, University of Gothenburg, Department of Economics, revised 27 Mar 2003.
    14. Crowder, William J & Hoffman, Dennis L, 1996. "The Long-Run Relationship between Nominal Interest Rates and Inflation: The Fisher Equation Revisited," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(1), pages 102-118, February.
    15. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-472, August.
    16. Valerie Mignon & Sandrine Lardic, 2003. "Fractional cointegration between nominal interest rates and inflation: A re-examination of the Fisher relationship in the G7 countries," Economics Bulletin, AccessEcon, vol. 3(14), pages 1-10.
    17. Booth, G. Geoffrey & Ciner, Cetin, 2001. "The relationship between nominal interest rates and inflation: international evidence," Journal of Multinational Financial Management, Elsevier, vol. 11(3), pages 269-280, July.
    18. Junttila, Juha, 2001. "Testing an Augmented Fisher Hypothesis for a Small Open Economy: The Case of Finland," Journal of Macroeconomics, Elsevier, vol. 23(4), pages 577-599, October.
    19. Fahmy, Yasser A. F. & Kandil, Magda, 2003. "The Fisher effect: new evidence and implications," International Review of Economics & Finance, Elsevier, vol. 12(4), pages 451-465.
    20. Mohsen Bahmani-Oskooee & Raymond Chi Wing Ng, 2002. "Long-Run Demand for Money in Hong Kong: An Application of the ARDL Model," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 1(2), pages 147-155, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Terhemba Iorember, Paul & Usar, Terzungwe & Hannafi Ibrahim, Kabiru, 2018. "Analyzing inflation in Nigeria: a fractionally integrated ARFIMA-GARCH modelling Approach," African Journal of Economic Review, African Journal of Economic Review, vol. 6(1), January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Awomuse, Bernard O. & Alimi, Santos R., 2012. "The Relationship between Nominal Interest Rates and Inflation: New Evidence and Implication for Nigeria," MPRA Paper 49684, University Library of Munich, Germany.
    2. R. Santos Alimi, 2014. "ARDL Bounds Testing Approach to Cointegration: A Re-Examination of Augmented Fisher Hypothesis in an Open Economy," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 2(2), pages 103-114, June.
    3. Somayeh Madadpour & Mohsen Asgari, 2019. "The puzzling relationship between stocks return and inflation: a review article," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 66(2), pages 115-145, June.
    4. H.a. Mitchell‐innes & M.j. Aziakpono & A.p. Faure, 2007. "Inflation Targeting And The Fisher Effect In South Africa: An Empirical Investigation," South African Journal of Economics, Economic Society of South Africa, vol. 75(4), pages 693-707, December.
    5. Peter Kehinde, Mogaji, 2010. "Fisher Effect and the Relationship between Nominal Interest Rates and Inflation: The Case of Nigeria," MPRA Paper 98760, University Library of Munich, Germany.
    6. Panopoulou, Ekaterini & Pantelidis, Theologos, 2016. "The Fisher effect in the presence of time-varying coefficients," Computational Statistics & Data Analysis, Elsevier, vol. 100(C), pages 495-511.
    7. Utku ALTUNÖZ, 2018. "Investigating the Presence of Fisher Effect for the China Economy," Sosyoekonomi Journal, Sosyoekonomi Society, issue 26(35).
    8. Ekaterini Panopoulou, 2005. "A Resolution of the Fisher Effect Puzzle: A Comparison of Estimators," The Institute for International Integration Studies Discussion Paper Series iiisdp067, IIIS.
    9. Ahmed Mehedi Nizam, 2020. "How the banking system is creating a two-way inflation in an economy," PLOS ONE, Public Library of Science, vol. 15(4), pages 1-40, April.
    10. Giorgio Canarella & Luis A. Gil-Alana & Rangan Gupta & Stephen M. Miller, 2020. "The Behavior of Real Interest Rates: New Evidence from a ``Suprasecular" Perspective," Working Papers 202093, University of Pretoria, Department of Economics.
    11. Erik Hjalmarsson & Pär Österholm, 2010. "Testing for cointegration using the Johansen methodology when variables are near-integrated: size distortions and partial remedies," Empirical Economics, Springer, vol. 39(1), pages 51-76, August.
    12. Maki, Daiki, 2003. "Nonparametric cointegration analysis of the nominal interest rate and expected inflation rate," Economics Letters, Elsevier, vol. 81(3), pages 349-354, December.
    13. Basse, Tobias & Wegener, Christoph, 2022. "Inflation expectations: Australian consumer survey data versus the bond market," Journal of Economic Behavior & Organization, Elsevier, vol. 203(C), pages 416-430.
    14. Maghyereh, A. & Al-Zoubi, H., 2006. "Does Fisher Effect Apply in Developing Countries: Evidence From a Nonlinear Cotrending Test applied to Argentina, Brazil, Malysia, Mexico, Korea and Turkey," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(2).
    15. Bosupeng, Mpho, 2016. "On The Fisher Effect: A Review," MPRA Paper 77916, University Library of Munich, Germany, revised 2016.
    16. Yap, Wei Yim & Lam, Jasmine S.L., 2006. "Competition dynamics between container ports in East Asia," Transportation Research Part A: Policy and Practice, Elsevier, vol. 40(1), pages 35-51, January.
    17. Bosupeng, Mpho & Biza-Khupe, Simangaliso, 2015. "The Impact of Money Supply Volatility on the Fisher Effect –A Botswana Empirical Perspective," MPRA Paper 77920, University Library of Munich, Germany, revised 2015.
    18. Ericsson, Neil R & Hendry, David F & Mizon, Grayham E, 1998. "Exogeneity, Cointegration, and Economic Policy Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 370-387, October.
    19. Jeremy B. Rudd & Karl Whelan, 2002. "A note on the cointegration of consumption, income, and wealth," Finance and Economics Discussion Series 2002-53, Board of Governors of the Federal Reserve System (U.S.).
    20. Anderson, Richard G. & Hoffman, Dennis L. & Rasche, Robert H., 2002. "A vector error-correction forecasting model of the US economy," Journal of Macroeconomics, Elsevier, vol. 24(4), pages 569-598, December.

    More about this item

    Keywords

    Fisher Effect; Co-integration; Error Correction Model; Nigeria;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:44987. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.