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The Fisher Hypothesis under Different Monetary Regimes

Thomas A. Barthold; William R. Dougan

We examine the relation between inflation and nominal interest rates under the various monetary regimes in effect in the United States since the turn of the century. Our data include a newly constructed time series of short-term municipal bond yields observed annually since 1902. The results generally support the hypothesis that after-tax nominal yields adjust point-for-point with rationally forecasted inflation for the postwar years, but strongly reject that hypothesis for the preceding years. We suggest, and offer supporting evidence, that the difference between the two subperiods may be attributable to differences in the optimal forecasting technique for each era when forecasting is a costly endeavor.

DOI

10.2307/1924527

Volume

68 (4)

Pages

674

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