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Structural Breaks, Inflation and Interest Rates: Evidence from the G7 Countries

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Department of Economic Analysis, University of Zaragoza, Gran Vía 2, 50006 Zaragoza, Spain
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Department of Applied Economics, University of Zaragoza, Gran Vía 2, 50006 Zaragoza, Spain
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Author to whom correspondence should be addressed.
Academic Editor: Pierre Perron
Econometrics 2017, 5(1), 11; https://doi.org/10.3390/econometrics5010011
Received: 24 August 2016 / Revised: 24 January 2017 / Accepted: 25 January 2017 / Published: 17 February 2017
(This article belongs to the Special Issue Unit Roots and Structural Breaks)
This study reconsiders the common unit root/co-integration approach to test for the Fisher effect for the economies of the G7 countries. We first show that nominal interest and inflation rates are better represented as I(0) variables. Later, we use the Bai–Perron procedure to show the existence of structural changes in the Fisher equation. After considering these breaks, we find very limited evidence of a total Fisher effect as the transmission coefficient of the expected inflation rates to nominal interest rates is very different than one. View Full-Text
Keywords: unit roots; structural breaks; interest rates; inflation; Fisher effect unit roots; structural breaks; interest rates; inflation; Fisher effect
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Clemente, J.; Gadea, M.D.; Montañés, A.; Reyes, M. Structural Breaks, Inflation and Interest Rates: Evidence from the G7 Countries. Econometrics 2017, 5, 11.

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