Does Fisher Effect Apply in Developing Countries: Evidence From a Nonlinear Cotrending Test applied to Argentina, Brazil, Malysia, Mexico, Korea and Turkey

This study is aimed mainly to examine the possible existence of a relationship between the nominal interest rate and the inflation rate in developing countries (Argentina, Brazil, Malaysia, Mexico, Korea and Turkey) coming up from a common nonlinear trend between both series. Evidence is first presented that the null hypothesis of unit root with drift (constant or linear trend) has been rejected in favor of nonlinear trend stationarity. The paper also found a robust nonlinear cotrending relationship between the interest rate and the inflation rate and the hypothesis of full Fisher effect is accepted.