Abstract:

This study examines the long-run relationship between nominal interest rates and inflation within the framework of Fisher's (1930) hypothesis for seven emerging markets, namely Russia, China, Turkey, Poland, South Africa, Mexico and Indonesia. The long-run cointegrating relationship is investigated using Pedroni (2004) and Koa (1999) panel cointegration tests and the cointegrating coefficient is estimated according to Pedroni's (2001) panel group mean FMOLS, DOLS and OLS. The results provide strong evidence for the weak version of Fisher's (1930) hypothesis. They show that although the interest rate and inflation are cointegrated, the cointegrating coefficient is less than unity. These findings have important implications for policymakers in these emerging markets.

Keywords: