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Working paper

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

Lutho Mbekeni and Andrew Phiri
October 2020

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.

Download SA-TIED Working Paper #142