The Inflation-Interest Rate Nexus: Fisher Revisited

Abstract

In this study were-examine the validity of the Fisher hypothesis under both the fixed and floating exchange rate periods for Canada and the United States. First the non-stationarity of inflation and interest rate series is examined, followed by an examination of the structure ofcointegration between them. This is conducted using the null of cointegration approach which is more powerful than classical tests and can distinguish between unit and near unit root processes. The Fisher hypothesis is accepted for Canada, but the evidence in favor of the Fisher hypothesis for the United States is mixed. (F4 l, F42)