Fractional Cointegration Analysis of Fisher Hypothesis in Nigeria
Keywords:
Cointegration, Fractional cointegration, Fisher hypothesis, Inflation, Nominal Interest RatesAbstract
In this paper, we examined fractional cointegration analysis of fisher hypothesis in Nigeria. It analyzed the existence of fractional cointegration relationship in nominal interest rate, real interest rate and inflation, which is consistent with the Fisher hypothesis. A conventional cointegration tests was applied between nominal interest rate, real interest and inflation, showing partial effect of Fisher. The value of the fractional intergrated parameter d was estimated. The fractional difference and the fractional cointegration analysis was carried out. It indicates that, there were two long run equilibrium relationships in the variables, showing full Fisher effect. This showed that the long-run relationship between nominal interest rates and inflation did not exist for Nigeria in the sample when conventional cointegration test was employed. However, fractional cointegration between the two variables was found, implying the validity of the Fisher hypothesis.
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