The Relationship between Interest Rates and Inflation: Examining the Fisher Effect in China

This study revisits the Fisher effect using a different empirical method that considers a potential nonlinear relationship between interest rates (treasury bond rates) and inflation in China. The rising uncertainty and asymmetric information in financial markets between bond holders and bond issuers...

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Bibliographic Details
Published inFrontiers of economics in China Vol. 15; no. 2; pp. 247 - 256
Main Authors Ongan, Serdar, Gocer, Ismet
Format Journal Article
LanguageEnglish
Published Beijing Higher Education Press 01.06.2020
Higher Education Press Limited Company
Subjects
asymmetric dynamic multipliers
Asymmetric information
Bonds
China
Financial markets
Fisher effect
Inflation
Inflation (Economics)
Interest rates
Markets
nonlinear autoregressive distributed lag (NARDL) model
Nonlinear systems
Prices and rates
Studies
Treasury bonds
Uncertainty
China
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Summary:This study revisits the Fisher effect using a different empirical method that considers a potential nonlinear relationship between interest rates (treasury bond rates) and inflation in China. The rising uncertainty and asymmetric information in financial markets between bond holders and bond issuers suggest such a potential nonlinear relationship. To this aim, we apply Shin et al.’s (2014) nonlinear autoregressive distributed lag (NARDL) model with asymmetric dynamic multipliers for the sample period 2002M7–2018M4. The empirical findings reveal symmetric and asymmetric partial Fisher effects for all sample bond rates in China. Furthermore, we find that 20-year bond rates experience the lowest partial Fisher effect.
Bibliography:treasury bonds
China
interest rates
asymmetric dynamic multipliers
nonlinear autoregressive distributed lag (NARDL) model
Fisher effect
inflation
ISSN:1673-3444
1673-3568
DOI:10.3868/s060-011-020-0011-6