Relationship Between The Nominal Interest Rate And Inflation Rate In China: Examination Of The Fisher Effect

The nominal interest rate and the rate of inflation are both important economicvariables in economic operation， but also one of the hot spots in the field of economicresearch. The fisher effect gives the relationship between the nominal interest rate andexpected inflation， which has been widely recognized in the academic circle， and alsoacceptedby economic individualsin real life. But in the practical research， there is not aunified conclusion for its existence or the extent to which， thereby forming the FisherEffect puzzle. But this has aroused more and more scholars to study this problem， thuswhich creat a lot of literature.In the extant literature， in the western developed countries， the empirical studiesof fisher effect are relative more than the empirical studies in China. This paper attemptsto make a Chinese fisher effect research. This paper selects three time periods: yearquarterly data and monthly data for empirical research in1992-2001，2002-2011and1992-2011respectively， as a result of the fisher effect involving only two variables， soin this paper I used the most commonly used E-G two steps method to make thecointegration test， then to make the error correction model. So the final conclusions are:The first of all， in all7selected variables， except for2002-2011years quarterlyinterbank interest rates of7days and quarterly inflation are stationary series， theremaining6sets of variables are all integrated of order one， but nominal interest rateand the inflation rate are all integrated of order onethe literature，there isa littledifference.Secondly， although we select different data， we find the fisher effect existsin alltime periods which we selected。When we use quarterly data， three times of the fishereffect coefficients is0.36，0.22，0.45; when we use monthly data， the fisher effectcoefficient is0.35，0.20，0.41respectively， in the2002-2011years， when we usemonthly1day interbank interest rates as the nominal interest rate index，the fisher effectcoefficient is0.14. As can be seen from this， although Chinese fisher effect exists， butthis effect is relatively weak. Thirdly， fisher effect coefficient between1992and2001are much bigger than thecoefficient between2002and2011， this is mainly because previous time periodcontaining1993-1996when owns high inflation and high ratesFourthly， using the quarterly data and monthly data which we respectively deriveFisher Effect Coefficient in the three time period，which comes out that the difference ofcoefficient is very small， the coefficients are respectively0.01，0.02and0.04，which are almost close to0， it can be understood as it is no different between interbankinterest rates of7days which are taken as the nominal interest rate variable and theone-year deposit interest rate in market， this is mainly because the interbank lendingmarket trading volume is still small in Chinese financial system’s scaleAll in all， the conclusion is:Thereis weak Fisher Effects in China between1992-2011.