In this paper we analyse the relationship between the Fisher hypothesis and monetary rules and their consequences on the effectiveness of monetary policy. To illustrate the analysis, we will focus on the strategy followed by the European Central Bank affecting the countries of the Eurozone.
The empirical application has been made for twelve countries of the Eurozone (Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Spain, and Portugal), using quarterly data (from the ECB Statistical Data Warehouse) for the period 1999-Q1 to 2015-Q4.
After applying the test for unit roots and stationarity to the variables, we have estimated the monetary rule and the Fisher equation by the generalized method of moments (GMM). The results indicate, first, that monetary policy is not sufficiently anti-inflationary, and therefore the contribution to macroeconomic stability would be limited; and, second, that there is a certain degree of money illusion. Consequently, monetary policy affects the real interest rate in the long run, as the nominal interest rate does not fully incorporate the expected evolution of the inflation rate.
In short, the monetary rule followed by the ECB would not guarantee that nominal short-term interest led to an ex-post rise of real interest rates. Regarding the long-term, a partial Fisher effect is observed.
Key words:inflation rate, interest rate, stabilization.
JEL Codes: E31, E43, E58.