A Kalman Filter Approach to Fisher Effect- Evidence from Nigeria

This paper investigates evidence of a Fisher effect in Nigeria by employing quarterly CPI inflation and

Nominal interest rates data. For a more robust result we conducted integration and cointegration tests in

order to examine time-series properties of the variables. Using Co-integration and Kalman filter

methodologies, the study did not find evidence of a full Fisher effect from 1961:1-2009:4. This result

indicates that nominal interest rates do not respond one-for-one to changes in inflation rates in the long

run despite the presence of positive relationship among the variables. Our study recommends the

adoption of potent policies aimed at checking inflation so as to help reduce high interest rates in order to

stimulate growth in the economy.

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