Academic Journals Database
Disseminating quality controlled scientific knowledge

Taylor Principle Supplements the Fisher Effect: Empirical Investigation under the US Context

ADD TO MY LIST
 
Author(s): Mohammed Saiful ISLAM | Mohammad Hasmat ALI

Journal: Economia : Seria Management
ISSN 1454-0320

Volume: 15;
Issue: 1;
Start page: 189;
Date: 2012;
VIEW PDF   PDF DOWNLOAD PDF   Download PDF Original page

Keywords: Fisher Effect | Monetary Policy | Taylor Principle

ABSTRACT
This paper reviews the short- and long-run dynamics of interest rate and inflation of the United States. Basing upon quarterly as well as monthly data over the period 1957 to 2010, we find evidence that interest rate behaviour of the Federal Reserve is consistent with the Taylor principle in short run and with the Fisher hypothesis in long run. Entire sample justifies the existence of a long run cointegrating relationship between federal funds rate and inflation characterised as the Fisher effect. When data are split into different subsamples, the cointegrating relationship disappears. Interest rate dynamics of pre-1980 and post-2001 neither track Fisher hypothesis nor Taylor principle, rather represent substantial discretion.

Tango Rapperswil
Tango Rapperswil

     Save time & money - Smart Internet Solutions