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Frontiers of Economics in China

Front. Econ. China    2020, Vol. 15 Issue (2) : 247-256     https://doi.org/10.3868/s060-011-020-0011-6
Orginal Article
The Relationship between Interest Rates and Inflation: Examining the Fisher Effect in China
Serdar Ongan1(), Ismet Gocer2()
1. Department of Economics, St. Mary's College of Maryland, St. Mary's City, MD 20686-3001, USA
2. Department of Econometrics, Adnan Menderes University, Aydin 09016, Turkey
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Abstract

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.

Keywords Fisher effect      nonlinear autoregressive distributed lag (NARDL) model      asymmetric dynamic multipliers      China      treasury bonds      inflation      interest rates     
Issue Date: 10 July 2020
 Cite this article:   
Serdar Ongan,Ismet Gocer. The Relationship between Interest Rates and Inflation: Examining the Fisher Effect in China[J]. Front. Econ. China, 2020, 15(2): 247-256.
 URL:  
http://journal.hep.com.cn/fec/EN/10.3868/s060-011-020-0011-6
http://journal.hep.com.cn/fec/EN/Y2020/V15/I2/247
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