Search Advanced

Quantitative Finance and Economics

2019, Volume 3, Issue 1: 75-87. doi: 10.3934/QFE.2019.1.75
Previous Article Next Article
Research article

Re-considering the Fisher equation for South Korea in the application of nonlinear and linear ARDL models

  • 1.
    Department of Economics, St. Mary’s College of Maryland, MD, USA
  • 2.
    Department of Econometrics, Adnan Menderes University, Aydin, Turkey
  • Received: 19 December 2018 Accepted: 05 March 2019 Published: 08 March 2019

  • JEL Codes: E0, E40, E43, G12, E6

  • This study aims to approach the Fisher effect issue from a different methodological perspective. To this aim, the nonlinear autoregressive distributed lag (ARDL) model, recently developed by Shin et al. (2014), is applied for South Korea between 2000Q4Ƀ2017Q4. This model allows us to decompose one variable (changes in inflation) into two new variables (increases and decreases in inflation) under the manners of nonlinearity and asymmetry. Hence, it enables us to monitor the Fisher effect in terms of increases and decreases separately. We also apply the linear version of the same model since the nonlinear ARDL model is the extended version of linear ARDL model. While the empirical findings of the nonlinear model support asymmetrically partial Fisher effects in the long-run for 1, 3, 5 and 10-years Korean bond rates, the linear model does not. Additionally, the nonlinear model detects lower size partial Fisher effects when the maturity of interest rates gets longer. Another finding of this study is that the nonlinear model may mathematically identify and introduce a different version of the partial Fisher effect based on singular (separate) effects of each decomposed variable in a parametric manner.

    Citation: Ongan Serdar, Gocer Ismet. Re-considering the Fisher equation for South Korea in the application of nonlinear and linear ARDL models[J]. Quantitative Finance and Economics, 2019, 3(1): 75-87. doi: 10.3934/QFE.2019.1.75

    Related Papers:

  • This study aims to approach the Fisher effect issue from a different methodological perspective. To this aim, the nonlinear autoregressive distributed lag (ARDL) model, recently developed by Shin et al. (2014), is applied for South Korea between 2000Q4Ƀ2017Q4. This model allows us to decompose one variable (changes in inflation) into two new variables (increases and decreases in inflation) under the manners of nonlinearity and asymmetry. Hence, it enables us to monitor the Fisher effect in terms of increases and decreases separately. We also apply the linear version of the same model since the nonlinear ARDL model is the extended version of linear ARDL model. While the empirical findings of the nonlinear model support asymmetrically partial Fisher effects in the long-run for 1, 3, 5 and 10-years Korean bond rates, the linear model does not. Additionally, the nonlinear model detects lower size partial Fisher effects when the maturity of interest rates gets longer. Another finding of this study is that the nonlinear model may mathematically identify and introduce a different version of the partial Fisher effect based on singular (separate) effects of each decomposed variable in a parametric manner.


    加载中


    [1] Ahmad S (2010) Fisher effect in nonlinear STAR framework: Some evidence from Asia. Econ Bull 30: 2558–2566.
    [2] Andrade I, Clare A (1994) Is the UK Treasury bill rate a good proxy for expected inflation in the United Kingdom? Econ Lett 45: 335–341. doi: 10.1016/0165-1765(94)90034-5
    [3] Maghyereh AI, Al-Zoubi HA (2006) Does Fisher effect apply in developing countries: Evidence from a nonlinear cotrending test applied to Argentina, Malaysia, Mexico, South Korea and Turkey. Appl Econ Int Dev 6: 31–46.
    [4] Karoumpa A (2010) Testing the Fisher effect in OECD countries: An empirical investigation. Master Thesis, University of Macedonia- Master of Economics.
    [5] Badillo R, Reverte C, Rubio E (2011) The Fisher effect in the EU revisited: New evidence using panel cointegration estimation with global stochastic trends. Appl Econ Lett 18: 1247–1251. doi: 10.1080/13504851.2010.532099
    [6] Caporale GM, Gil-Alana LA (2017) Testing the Fisher hypothesis in the G-7 countries Using i(d) Techniques. Cesifo Working Paper Series No. 6482.
    [7] Chen C (2015) Fisher effect' theory and 'Fisher Paradox' in China's economy. Open J Soc Sci 3: 80–85.
    [8] Clemente J, Gadea M, Montanes A, et al. (2017) Structural breaks, inflation and interest rates: Evidence from the G7 countries. Econ 5: 2–17.
    [9] Darby MR (1975) The financial and tax effects of monetary policy on interest rates. Econ Inq 13: 266–276. doi: 10.1111/j.1465-7295.1975.tb00993.x
    [10] Feldstein M (1976) Inflation, income taxes, and the rate of interest: A theoretical analysis. Am Econ Rev 66: 809–820.
    [11] Fisher I (1930) The Theory of Interest. Available from: http://files.libertyfund.org/files/1416/0219_Bk.pdf
    [12] Ghazali NA, Ramlee S (2003) A long memory test of the long-run Fisher effect in the G7 countries. Appl Financ Econ 13: 763–769. doi: 10.1080/09603100210149149
    [13] Hamori S (1997) A simple method to test the Fisher effect. Appl Econ Lett 4: 477–479. doi: 10.1080/758536629
    [14] Hatemi-J A (2011) A re-examination of the Fisher effect using an alternative approach. Appl Econ Lett 18: 855–858. doi: 10.1080/13504851.2010.505551
    [15] Hatemi-J A, Irandoust M (2008) The Fisher effect: A Kalman filter approach to detecting structural change. Appl Econ Lett 15: 619–624. doi: 10.1080/13504850600721924
    [16] IMF (2018) Data Planet. Available from: http://www.imf.org.
    [17] Inoue T, Toyoshima Y, Hamori S (2012) Inflation Targeting in Korea, Indonesia, Thailand, and the Philippines: The Impact on Business Cycle Synchronization between Each Country and the World. IDE Discussion Paper No. 328.
    [18] Jang BW (2008) Monetary policy in Korea, 2 Eds., The Bank of Korea.
    [19] Jareno F, Tolentino M (2012) The Fisher effect in the Spanish case: A preliminary study. Asian Econ Financ Rev 2: 841–857.
    [20] Kasman S, Kasman A, Turgutlu E (2006) Fisher hypothesis revisited: A fractional cointegration analysis. Emerg Markets Financ Trade 42: 59–76. doi: 10.2753/REE1540-496X420604
    [21] Kim S, Kim WT (1999) Recent developments in monetary policy operating procedures: The Korean case. Monetary Policy Operating Procedures Emerg Market Econ 5: 118–168.
    [22] Kim S, Park YC (2006) Inflation targeting in Korea: a model of success? BIS Paper No. 31, 140–164.
    [23] Kim J (2012) Monetary and exchange rate policy in the aftermath of the Asian financial crisis: The case of Korea. Korean Econ Rev 28: 91–116.
    [24] Kim JY, Park WY (2018) Some empirical evidence on models of Fisher relation. Seoul J Econ 31: 145–155.
    [25] KOSIS (2018) Statistical Database. Available from: http://kosis.kr/eng/statisticsList/statisticsList_01List.jsp?vwcd=MT_ETITLE&parentId=M#SubCont
    [26] Koustas Z, Lamarche JF (2010) Evidence of non-linear mean reversion in the real interest rate. Appl Econ 42: 237–248. doi: 10.1080/00036840701579242
    [27] Ling TH (2008) Fisher effect and real interest rate equalization in selected Asian countries. Master's thesis, Universiti Malaysia Sabah.
    [28] Mundell R (1963) Inflation and real interest. J Polit Econ 7: 280–283.
    [29] Ng S, Perron P (2001) Lag length selection and the construction of unit root tests with good size and power. Econometrica 69: 1519–1554. doi: 10.1111/1468-0262.00256
    [30] Nusair S (2008) Testing for the Fisher hypothesis under regime shifts: An application to Asian countries. Int Econ J 22: 273–284. doi: 10.1080/10168730802095660
    [31] Ozcan B, Ari A (2016) Does the Fisher hypothesis hold for the G7? Evidence from the panel cointegration test. Econ Res 28(1): 271–283.
    [32] Pesaran MH, Shin Y, Smith RJ (2001) Bounds testing approaches to the analysis of level relationships. J Appl Econ 16: 289–326. doi: 10.1002/jae.616
    [33] Saglam Y (2018) Fisher Hypothesis with Fourier form: Evidence from Next-11 countries. J Yasar Universit 13/52: 316–321.
    [34] Janor H (2001) The long-run relationship between nominal interest rates and inflation of the Asian developing countries. J Ekon Malays 35: 3–11.
    [35] Shin Y, Yu B, Greenwood-Nimmo M (2014) Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework, by R. Sickels and W. Horrace, Festschrift in Honor of Peter Schmidt: Econometric Methods and Applications, eds., New York: Springer, 281–314.
    [36] Sun Y, Phillips PCB (2004) Understanding the Fisher equation. J Appl Econ 19: 869–886. doi: 10.1002/jae.760
    [37] Tanzi V (1980) Inflationary expectations, economic activity, taxes and interest rates. Am Econ Rev 70: 12–21.
    [38] Tobin J (1965) Money and economic growth. Econometrica 33: 671–684. doi: 10.2307/1910352
    [39] Toyoshima Y, Hamori S (2011) Panel cointegration analysis of the Fisher effect: Evidence from the US, the UK, and Japan. Econ Bull 31: 2674–2682.
  • Reader Comments
  • © 2019 the Author(s), licensee AIMS Press. This is an open access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0)
通讯作者: 陈斌, bchen63@163.com
  • 1. 

    沈阳化工大学材料科学与工程学院 沈阳 110142

  1. 本站搜索
  2. 百度学术搜索
  3. 万方数据库搜索
  4. CNKI搜索
Quantitative Finance and Economics
3.2 0.3

Metrics

Article views(3681) PDF downloads(752) Cited by(4)

Preview PDF
Download XML
Export Citation
Article outline

Figures and Tables

Tables(4)

Other Articles By Authors

Related pages

Tools

/

DownLoad:  Full-Size Img  PowerPoint
Return
Return

Catalog