This study investigates the validity of both the conventional and tax-adjusted Fisher effects using time series methods such as the ARDL bounds test, and Gregory-Hansen (G-H) cointegration test. To compare the conventional and tax-adjusted Fisher effects, we use two different time series data for interest rates: 1) interest rates adjusted for taxes, and 2) interest rates not adjusted for taxes. Using monthly changes in quarterly and annual interest and inflation rates, both the G-H and ARDL bound tests support the conventional and tax-adjusted Fisher effects. However, the magnitude of the inflation coefficient in the long-run relationship tends to decline for the tax adjusted Fisher effect.
Topics in Middle Eastern and North African Economies, electronic journal, Volume 15, Middle East Economic Association and Loyola University Chicago, September, 2013, http://www.luc.edu/orgs/meea/
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.
© 2013 the authors