“Fisher Effect” Theory and “Fisher Paradox” in China’s Economy
Author(s)
Chaofan Chen*
Affiliation(s)
School of Economics and Resource Management, Beijing Normal University, Beijing, China.
School of Economics and Resource Management, Beijing Normal University, Beijing, China.
ABSTRACT
“Fisher Effect” is the famous theoretical assumption about the interest rate and inflation rate. The paper first elaborates the basic principle of “Fisher Effect” theory, then finds the “Fisher Paradox” that may exist in China’s economy from the domestic and foreign scholars’ empirical study. Moreover, based on the data of China in 1980-2012, we conduct the Granger Causality Test of “Fisher Effect” and preliminarily conclude that from the empirical perspective, China does not exist long- term stable relationship between interest rate and inflation rate. Finally, it explains China’s “Fisher Paradox” root in the controlling characteristics of interest rate from policy perspective.
“Fisher Effect” is the famous theoretical assumption about the interest rate and inflation rate. The paper first elaborates the basic principle of “Fisher Effect” theory, then finds the “Fisher Paradox” that may exist in China’s economy from the domestic and foreign scholars’ empirical study. Moreover, based on the data of China in 1980-2012, we conduct the Granger Causality Test of “Fisher Effect” and preliminarily conclude that from the empirical perspective, China does not exist long- term stable relationship between interest rate and inflation rate. Finally, it explains China’s “Fisher Paradox” root in the controlling characteristics of interest rate from policy perspective.
Cite this paper
Chen, C. (2015) “Fisher Effect” Theory and “Fisher Paradox” in China’s Economy. Open Journal of Social Sciences, 3, 80-85. doi: 10.4236/jss.2015.310012.
Chen, C. (2015) “Fisher Effect” Theory and “Fisher Paradox” in China’s Economy. Open Journal of Social Sciences, 3, 80-85. doi: 10.4236/jss.2015.310012.
References
[1] Fisher, I. (1965) The Theory of Interest. Kelley. [2] Chen, M.X. (2003) History of Economic Theory. China Renmin University Press, Beijing. [3] Krugman, P.R. and Obstfeld, M. (1998) Price Levels and the Exchange Rate in the Long Run. In: Krugman, P.R. and Obstfeld, M., Eds., International Economics: Theory and Policy, Scott, Foresman, and Co., Boston, 378-409. [4] King, R.G. and Watson, M.W. (1997) Testing Long-Run Neutrality. FRB Richmond Economic Quarterly, 83, 69-101. [5] Ghazali, N.A. and Ramlee, S. (2003) A Long Memory Test of the Long-Run Fisher Effect in the G7 Countries. Applied Financial Economics, 13, 763-769. http://dx.doi.org/10.1080/09603100210149149 [6] Liu, J.Q., Guo, Z.F. and Xie, W.D. (2003) Points in the Whole Inspection of the Time Series and Fisher Effect Mechanism Analysis. Journal of Quantitative Technical Economics, 4, 59-63. [7] Liu, J.Q., Sui, J.L. and Yan, C. (2009) “Fisher Effect” Partition System and Its Test in China’s Economic. Journal of Nantong University (Social Science Edition), 1,107-108. [8] Wang, S.P. and Chen, W.J. (2008) Nonparametric Test China’s “Fisher Effect”. Journal of Statistical Research, 25, 79-85. [9] Wang, Q.Y. and Wu, N. (2009) Revisit to “Fisher Effect”: The Panel Cointegration Base on the International New Data. Journal of Southern Economy, 7, 61-62. [10] Ying, J. (2008) Correlation Studies of Interest Rate and Inflation Rate. Journal of Modern Business, 4, 125.
[1] Fisher, I. (1965) The Theory of Interest. Kelley. [2] Chen, M.X. (2003) History of Economic Theory. China Renmin University Press, Beijing. [3] Krugman, P.R. and Obstfeld, M. (1998) Price Levels and the Exchange Rate in the Long Run. In: Krugman, P.R. and Obstfeld, M., Eds., International Economics: Theory and Policy, Scott, Foresman, and Co., Boston, 378-409. [4] King, R.G. and Watson, M.W. (1997) Testing Long-Run Neutrality. FRB Richmond Economic Quarterly, 83, 69-101. [5] Ghazali, N.A. and Ramlee, S. (2003) A Long Memory Test of the Long-Run Fisher Effect in the G7 Countries. Applied Financial Economics, 13, 763-769. http://dx.doi.org/10.1080/09603100210149149 [6] Liu, J.Q., Guo, Z.F. and Xie, W.D. (2003) Points in the Whole Inspection of the Time Series and Fisher Effect Mechanism Analysis. Journal of Quantitative Technical Economics, 4, 59-63. [7] Liu, J.Q., Sui, J.L. and Yan, C. (2009) “Fisher Effect” Partition System and Its Test in China’s Economic. Journal of Nantong University (Social Science Edition), 1,107-108. [8] Wang, S.P. and Chen, W.J. (2008) Nonparametric Test China’s “Fisher Effect”. Journal of Statistical Research, 25, 79-85. [9] Wang, Q.Y. and Wu, N. (2009) Revisit to “Fisher Effect”: The Panel Cointegration Base on the International New Data. Journal of Southern Economy, 7, 61-62. [10] Ying, J. (2008) Correlation Studies of Interest Rate and Inflation Rate. Journal of Modern Business, 4, 125.