Mogaji, Peter Kehinde (2010): Fisher Effect and the Relationship between Nominal Interest Rates and Inflation: The Case of Nigeria.
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Abstract
This research study carries out empirical investigations of the Fisher effect and the longrun relationship between nominal interest rates and expected inflation in Nigeria making use of annual data covering a period of half of a century. Fisher (1930) postulation is that nominal interest rates should reflect the expected rate inflation rates movements on oneforone basis. Applying the Nigerian data covering the period between 1961 and 2009, this study uses the 3month treasury bill rates to proxy for nominal interest rates while the 12month moving average headline inflation serves as the expected inflation. Apart from the descriptive analyses of the sample data, the econometric approaches which the study employs are the ordinary least square (OLS) regression, the EngleGranger ADF residualbased cointegration, the Johansen maximal likelihood cointegration and Granger causality test. Testing the data, using the augmented DickeyFuller (ADF) unit root test method, it was found out that nominal interest rate and expected inflation were nonstationary in levels but in first differences. This suggests that the OLS regression may be spurious even as the result rejects a full fisher effect in Nigeria. The results of the cointegration tests imply that there is no longrun cointegration relationship between nominal interest rates and inflation in Nigeria. The Granger causality tests report that expected inflation does not Granger cause nominal interest rates in Nigeria, but a oneway directional movement running only from nominal interest rates to inflation. The problem of high inflation identified in the history of Nigeria prompted the recommendation for the adoption inflation targeting policy for the country and other countries in this category while the interest rate should be set in line with the dictates of the economy.
Item Type:  MPRA Paper 

Original Title:  Fisher Effect and the Relationship between Nominal Interest Rates and Inflation: The Case of Nigeria 
English Title:  Fisher Effect and the Relationship between Nominal Interest Rates and Inflation: The Case of Nigeria 
Language:  English 
Keywords:  Fisher Effect 
Subjects:  E  Macroeconomics and Monetary Economics > E3  Prices, Business Fluctuations, and Cycles > E31  Price Level ; Inflation ; Deflation E  Macroeconomics and Monetary Economics > E4  Money and Interest Rates E  Macroeconomics and Monetary Economics > E4  Money and Interest Rates > E43  Interest Rates: Determination, Term Structure, and Effects 
Item ID:  99040 
Depositing User:  Dr Peter Kehinde Mogaji 
Date Deposited:  18 Mar 2020 09:43 
Last Modified:  18 Mar 2020 09:43 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/99040 
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