Testing the Fisher hypothesis of real interest rate parity
Name
Institution
Date
, TESTING THE FISHER HYPOTHESIS OF REAL INTEREST RATE PARITY 2
Testing the Fisher hypothesis of real interest rate parity
Introduction
Among the steps that can be implemented in proving a given a hypothesis is through data
analysis implementation where the relationship between two sets of data is tested. With the use
of a regression analysis where the p-value is utilized in testing a hypothesis, it is possible to
identify where there exist a relationship between the nominal interest rates and inflation of a
company. With the given set of data, the current analysis report assumes that one set of data
indicates the nominal interest levels of a given economy while the next set of data indicates the
inflation rate of a given economy. To prove the fisher hypothesis of real interest rate parity, a
significant relationship must exist between the inflation and the real interest rate data.
Fisher hypothesis of real interest rate parity
According to Hall (2018) the Fisher hypothesis was designed by Irving Fisher as an
exchange rate model. It describes the sport currency price movement through the review of the
nominal interest rates that exist in a country and the level of inflation that is realised. The theory
asserts that the real rate of return is largely influenced by the real rate of return plus the expected
inflation rate. With the use of the Fisher hypothesis, it is possible for financial exports to set the
nominal interest rates that can help in determining the value of returns that investors derive in a
given economy. The theory is also ideal for the government institutions that are tasked in
controlling the level of inflation in a given economy as it explains how the inflation will affect
the returns that are realised in a given country. To test the theory the hypothesis of the two data
sets was developed as shown below
Name
Institution
Date
, TESTING THE FISHER HYPOTHESIS OF REAL INTEREST RATE PARITY 2
Testing the Fisher hypothesis of real interest rate parity
Introduction
Among the steps that can be implemented in proving a given a hypothesis is through data
analysis implementation where the relationship between two sets of data is tested. With the use
of a regression analysis where the p-value is utilized in testing a hypothesis, it is possible to
identify where there exist a relationship between the nominal interest rates and inflation of a
company. With the given set of data, the current analysis report assumes that one set of data
indicates the nominal interest levels of a given economy while the next set of data indicates the
inflation rate of a given economy. To prove the fisher hypothesis of real interest rate parity, a
significant relationship must exist between the inflation and the real interest rate data.
Fisher hypothesis of real interest rate parity
According to Hall (2018) the Fisher hypothesis was designed by Irving Fisher as an
exchange rate model. It describes the sport currency price movement through the review of the
nominal interest rates that exist in a country and the level of inflation that is realised. The theory
asserts that the real rate of return is largely influenced by the real rate of return plus the expected
inflation rate. With the use of the Fisher hypothesis, it is possible for financial exports to set the
nominal interest rates that can help in determining the value of returns that investors derive in a
given economy. The theory is also ideal for the government institutions that are tasked in
controlling the level of inflation in a given economy as it explains how the inflation will affect
the returns that are realised in a given country. To test the theory the hypothesis of the two data
sets was developed as shown below
