Interest Rates, Expected Inflation and Structural Breaks: Further Evidence on the Fisher Effect in India (1996-2013)

I show that accounting for a structural monetary policy shock associated with the 2007-2008 global financial crisis is crucial in order to obtain moderate empirical support for the Fisher effect in India since the liberalization of the early 90’s. Additional empirical evidence about the stochastic properties of real interest rates further supports this conclusion. Drawing on this evidence, some policy implications related to the persistence of negative real interest rates in India during the latest years are discussed.