The long‐run Fisher effect in developing economies

Abstract

Purpose

The purpose of this study is to test the validity of Fisher effect for four South Asian and two oil‐producing countries, namely India, Bangladesh, Pakistan, Sri Lanka, Kuwait and Saudi Arabia.

Design/methodology/approach

The autoregressive distributed lag‐bound testing approach is used which is capable of testing the long‐run relationship irrespective of whether the underlying series are individually I(0) or I(1).

Findings

The estimation results indicate the presence of weak form of Fisher effect in India, Pakistan, Kuwait and Saudi Arabia, while the hypothesis of the existence of Fisher effect is not supported for Bangladesh and mixed results are found for Sri Lanka.

Practical implications

The results help monetary authorities to formulate better monetary policy, besides many other far reaching macroeconomic implications for each economy.

Originality/value

The use of a variety of interest rates and the use of a relatively new technique in Fisher effect is tested in developing economies.

Citation

Ahmad, S. (2010), "The long‐run Fisher effect in developing economies", Studies in Economics and Finance, Vol. 27 No. 4, pp. 268-275. https://doi.org/10.1108/10867371011085129