Co-integration, error correction and the Fisher effect: A clarification

Philip Garcia, Hector O. Zapata1

Research output: Contribution to journalArticlepeer-review


The presence of co-integration between interest rates and inflation implies the existence of an error-correction model and the possibility of two sources of causation. Causality testing which does not account for feedback through the error-correction mechanism as well as through the lagged changes in the variables can produce misleading results. Reinterpreting Atkins' error-correction model and causality tests in this framework points to a feedback relationship between inflation and post-tax nominal interest rates. These findings are consistent with previously published results but are in contrast to Atkins' conclusion of one-way causality from inflation to interest rates.

Original languageEnglish (US)
Pages (from-to)1367-1368
Number of pages2
JournalApplied Economics
Issue number8
StatePublished - Aug 1 1991

ASJC Scopus subject areas

  • Economics and Econometrics


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