Abstract:

This paper aims to test the validity of "Fisher Hypothesis" for period 1995:Q1-2014:Q4 in Organization for Economic Cooperation and Development (OECD) member countries by using dynamic panel data analysis. The findings obtained using dynamic panel data analysis in this study can be listed as follows: a) An economic shock or policy change that will occur in any of the OECD countries, also affects other countries; b) Interest and inflation influence each other in different degrees in each of the OECD countries. This finding indicates that OECD countries have different economic structures; c) The long-term relationship between inflation and interest have been determined in examined OECD countries and this finding supports the Fisher hypothesis that claims there is a long-term linkage between nominal interest rates and inflation rates; d) The findings have been determined which imply that in the long-term inflation and interest affect each other positively in examined OECD countries. This finding proves the validity of "The Partial Fisher Effect"; e) According to the country-based coefficients; Fisher hypothesis is not valid for five OECD countries while partial Fisher effect is valid for thirteen OECD countries and full Fisher effect is valid for an OECD country; f) Finally, an increase in interest rates leads to an increase in inflation in the thirteen OECD countries.

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