Fisher’s hypothesis, survey-based expectations, and asymmetric adjustments: Empirical evidence from South Africa

Our study re-examines Fisher’s hypothesis for South Africa in the post-inflation targeting era and presents two noteworthy empirical contributions. Firstly, we examine the Fisher effect by making use of survey-based inflation expectations data for financial analysts, the business sector, trade unions, and households. Secondly, we examine both short-run and long-run asymmetric cointegration effects in Fisher’s relation using the nonlinear autoregressive distributive lag model as an econometric framework. Our full quarterly sample (2002:Q1–2019:Q4) finds interest rates to respond more aggressively to falling expectations than rising one, with a full Fisher effect found for financial analysts, partial effects for households and the business sector, and no effects for trade unions. However, after splitting the data into pre- and post-financial crisis periods, we observe changing dynamics in which interest rates respond more aggressively to rising inflation, with partial effects also being found for trade unions. Policy recommendations are offered.