Affiliation:
1. Ankara Hacı Bayram Veli Üniversitesi
Abstract
This paper aims to present the long-run covariability between inflation and the interest rate of the United Kingdom by using a new method developed by Müller and Watson (2018) that eliminates the low-frequency problems. In this study, the validity of the Fisher hypothesis is investigated under structural break periods for the UK's economy. The analysis is carried out with monthly inflation and interest rate for six periods: Full sample (1920:1-2019:12), interwar years (1920:1-1939:8), fixed exchange rate (1952:1-1973:2), Post War II (1952:1-1992:9) and two different inflation targeting periods (1992:10-2008:8 and 1992:10-2019:12). The empirical finding suggests that the Fisher hypothesis holds for the United Kingdom in the long-run.
Reference47 articles.
1. Atil, A. et al. (2020), “Are natural resources a blessing or a curse for financial development in Pakistan? The importance of oil prices, economic growth and economic globalization”, Resources Policy, 67, 101683.
2. Atkins, F.J. (2002), “Multiple Structural Breaks in the Nominal Interest Rate and Inflation in Canada and the United States”, University of Calgary Department of Economics Discussion Paper, No: 2002-07.
3. Bai, J. & P. Perron (1998), “Estimating and Testing Linear Models with Multiple Structural Changes”, Econometrica, 66(1), 47-78.
4. Bai, J. & P. Perron (2003), “Computation and Analysis of Multiple Structural-Change Models”, J. Appl., Econometrica, 18(1), 1-22.
5. Benati, L. (2004), “Evolving Post-World War II U.K. Economic Performance”, Journal of Money, Credit, and Banking, 36(4), 691-718.