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How do Economic Growth Asymmetry and Inflation Expectations Affect Fisher Hypothesis and Fama’s Proxy Hypothesis?

Yuan-Ming Lee Kuan-Min Wang

*Corresponding author: Kuan-Min Wang wkminn@ocu.edu.tw

QFE2017,4,428doi:10.3934/QFE.2017.4.428

Based on the threshold panel data model, this study employs the quarterly panel data of 38 countries between 1981 and 2014 to test whether economic growth asymmetry, expected inflation, and unexpected inflation affect the Fisher hypothesis and Fama’s proxy hypothesis. The empirical results show the following: (1) When real economic growth rate is greater than the threshold (-0.009), Fisher hypothesis is supported. (2) When real economic growth rate is less than the threshold (-0.009), two scenarios hold true: before real variables are included, Fisher hypothesis is rejected; and when real variables are included, real economic growth is negative, inflation is expected, and thus, Fama’s hypothesis is supported.

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