{
  "title": "The Inverted Fisher Hypothesis: Inflation Forecastability and Asset Substitution",
  "publication": "IMF Working Papers, December 1, 2000",
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  "summary": "This paper examines the implications of inflation persistence for the inverted Fisher hypothesis that nominal interest rates do not adjust to inflation because of a high degree of substitutability between money and bonds.",
  "sections": [
    {
      "heading": "Key question and approach",
      "content": "- Examines implications of inflation persistence for the inverted Fisher hypothesis: nominal interest rates do not adjust to inflation because of a high degree of substitutability between money and bonds.\n- Emphasizes that substitutability between nominal assets and capital can make the inverted Fisher hypothesis inconsistent with the data when inflation persistence is high.\n- Uses a switching regression model to allow the reflection of inflation in interest rates to vary according to the degree of inflation persistence or forecastability.\n- Tests the hypothesis using U.S. data and a threshold on inflation forecastability."
    },
    {
      "heading": "Main findings",
      "content": "- The substitutability between nominal assets and capital renders the inverted Fisher hypothesis inconsistent with the data when inflation persistence is high.\n- The inverted Fisher hypothesis is supported by U.S. data only when inflation forecastability is below a certain threshold.\n- The analysis highlights a threshold effect: the degree to which nominal interest rates reflect inflation depends on inflation persistence/forecastability."
    },
    {
      "heading": "Methodology",
      "content": "- Empirical framework: switching regression model that allows the relationship between inflation and nominal interest rates to change with inflation persistence/forecastability.\n- Focus on how inflation forecastability/ persistence governs whether inflation is reflected in interest rates."
    },
    {
      "heading": "Relevant subjects and keywords (as listed)",
      "content": "- Subjects: Consumer price indexes, Financial services, Inflation, Inflation persistence, Marginal effective tax rate, Prices, Real interest rates, Tax policy\n- Keywords: asset substitution, castability index, Consumer price indexes, high-inflation regime, Inflation, inflation forecastability, inflation level, Inflation persistence, inflation process, Inverted Fisher hypothesis, low-to-moderate inflation economy, Marginal effective tax rate, nominal interest rate, null hypothesis, rate of return, Real interest rates, switching regression, threshold effect, WP\n\n---\n\n Content in this bundle\n\n- The Inverted Fisher Hypothesis: Inflation Forecastability and Asset Substitution - WP/00/194\n  - The Inverted Fisher Hypothesis: Inflation Forecastability and Asset Substitution - WP/00/194 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - The Inverted Fisher Hypothesis: Inflation Forecastability and Asset Substitution - WP/00/194 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/the-inverted-fisher-hypothesis-inflation-forecastability-and-asset-substitution-3901"
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    "Authors: Woon Gyu Choi",
    "Published: December 1, 2000",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451859850.001",
    "Examines implications of inflation persistence for the inverted Fisher hypothesis: nominal interest rates do not adjust to inflation because of a high degree of substitutability between money and bonds.",
    "Emphasizes that substitutability between nominal assets and capital can make the inverted Fisher hypothesis inconsistent with the data when inflation persistence is high.",
    "Uses a switching regression model to allow the reflection of inflation in interest rates to vary according to the degree of inflation persistence or forecastability.",
    "Tests the hypothesis using U.S. data and a threshold on inflation forecastability.",
    "The substitutability between nominal assets and capital renders the inverted Fisher hypothesis inconsistent with the data when inflation persistence is high.",
    "The inverted Fisher hypothesis is supported by U.S. data only when inflation forecastability is below a certain threshold.",
    "The analysis highlights a threshold effect: the degree to which nominal interest rates reflect inflation depends on inflation persistence/forecastability.",
    "Empirical framework: switching regression model that allows the relationship between inflation and nominal interest rates to change with inflation persistence/forecastability.",
    "Focus on how inflation forecastability/ persistence governs whether inflation is reflected in interest rates.",
    "Subjects: Consumer price indexes, Financial services, Inflation, Inflation persistence, Marginal effective tax rate, Prices, Real interest rates, Tax policy",
    "Keywords: asset substitution, castability index, Consumer price indexes, high-inflation regime, Inflation, inflation forecastability, inflation level, Inflation persistence, inflation process, Inverted Fisher hypothesis, low-to-moderate inflation economy, Marginal effective tax rate, nominal interest rate, null hypothesis, rate of return, Real interest rates, switching regression, threshold effect, WP",
    "**The Inverted Fisher Hypothesis: Inflation Forecastability and Asset Substitution - WP/00/194**"
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