Is there any Fisherian Link between Nominal Interest Rate and Inflation in Albania?

Abstract

The aim of this paper is to examine the implementation of the well-known Fisher Hypothesis (FH) for Albania. Fisher Hypothesis investigates the relationship that exists between the expected inflation and interest rates and to which extent holds the Fisher effect, for the period 1997-2013. The first step of the study is an introduction of the Fisher Hypothesis, its definition and the main points. The second part includes an econometric model, by using the Johansen Cointegration Test for the Albanian quarterly nominal interest rate and quarterly inflation rate, in order to explain as correctly as possible the relationship between inflation and interest rate. In the end the empirical results disclosed that there is a long run relationship between nominal interest rates and inflation. This indicates that full Fisher hypothesis does not hold but there is a very strong Fisher effect in the Case of Albania regarding the period under study.

DOI: 10.5901/mjss.2014.v5n13p334