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ABSTRACT:

In the present study, the Fisher hypothesis that considers a one-to-one and unidirectional relationship between inflation and interest rates was tested using a quarterly frequency dataset for E-7 countries. Due to the fact that parameter constancy was not established in the study, Arai & Kurozumu and Kejriwal test techniques were used and it was found that Fisher effect was valid in weak and strong forms for country groups excluding Russia. At the same time, due to the fact that coefficient indicator modulus observed in slope parameters after structural changes had negative values, contractionary monetary policies in these economies where inflation targeting strategies were implemented resulted in weakening of the relationship between inflation and interest rate variables.

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