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Seoul Journal of Economics - Vol. 35 , No. 3

[ Article ]
Seoul Journal of Economics - Vol. 34, No. 3, pp. 393-404
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2021
Received 28 Apr 2021 Accepted 29 Jul 2021

Fisher Relation and Financial Crisis: Evidence for East Asian Countries
Jae-Young Kim
Jae-Young Kim, Professor, Department of Economics, Seoul National University, Kwanak-ro 1 Kwanak-gu Seoul, 08826, Korea, Tel: 82-2-880-6390, Fax: 82-2-886-4231 (

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JEL Classification: C1, C22, C5


The Fisher relation (FR) is a key theoretical relation that underlies many important results in economics and finance. The theoretical FR implies that the two variables of the nominal interest rate and the expected inflation are cointegrated. In practice, however, real data often fail to confirm the cointegration FR. In this paper we propose that failure of confirming cointegration FR is due to nonstationary deviations in a relatively small portion of the data period. We investigate such possibility based on the notion of segmented cointegration in Kim (2003). Our analysis is to detect such a situation and to identify the segmented periods of cointegration. We analyze data from five east Asian economies in a period including the Asian financial crisis. For quarterly data for those economies, we have found that short-run nonstationary deviations cause failure of the cointegration FR. The segments of non-cointegration overlap the period of east Asian financial crisis, which started in the year of 1997, with slight difference across economies. This result implies that for data from the east Asian countries the Fisher relation prevails in the data period except the abnormal period of financial crisis.

Keywords: Fisher relation, East Asian crisis, Segmented cointegration


The author is grateful for helpful comments by a co-editor and anonymous referees. This work was supported by the National Research Foundation Grant funded by the Korean Government (Grant #: NRF-2016S1A5B8924523) and by the Center for National Competitiveness of the Institute for Economic Research in Seoul National University.

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