Testing the Fisher effect in the presence of structural change: A case study of the UK, 1966-2007

Abstract

In this paper, we provide an empirical test of the Fisher effect using cointegration techniques, where the existence of instabilities in the cointegrating or long-run relationship is explicitly tested. The analysis is applied to the UK, a country that has been subject to potentially strong regime shifts, for the period 1966-2007. To this end, we apply some recent econometric techniques aimed to detect eventual structural changes, allowing the instability to occur at an unknown date.