Does the Fisher hypothesis hold for the G7 countries? Evidence from ADL threshold cointegration test

Abstract

The goal of this paper is to examine the validity of the Fisher hypothesis in G7 countries over the period 1990-2012 by using the Autoregressive distributed lag (ADL) test for threshold cointegration recently introduced in the literature by Li and Lee (2010). The major advantage of the ADL threshold test is that it enables us to investigate nonlinearity and cointegration simultaneously. The same order of integration of all variables is not necessary with this method of cointegration relationship testing.The findings obtained from this paper indicate that Fisher hypothesis is valid for Canada, Germany, Italy and Japan but is not valid for France, UK and USA.