Omay, TolgaOmay, TolgaHasanov, MuebarizÇankaya Meslek Yüksekokulu2016-04-282016-04-282010Omay, T., Hasanov, M. (2008). The effects of inflation uncertainty on interest rates: a nonlinear approach. Applied Economics, 42(23), 2941-2955. http://dx.doi.org/10.1080/000368408019647570003-68461466-4283https://doi.org/10.1080/00036840801964757Hasanli, Mubariz/0000-0003-0216-9531In this article, we investigate the effects of inflation variability on short-term interest rates within a nonlinear smooth transition regression framework. The test results suggest that only the conditional mean of the inflation is a nonlinear process whereas the conditional variance is time variant but linear. Using the square root of conditional variance as a proxy for inflation risk, we estimate Fisher equation augmented with inflation risk. Although the estimated Fisher equations suggest that inflation risk reduces short-term interest rates, we find that the effects of inflation risk on interest rates are regime-dependent. Particularly, we find that the negative effects of inflation variability on nominal rates are greater in low-inflationary regimes when compared to high-inflationary regimes. On the other hand, it is found that both inflation and inflation uncertainty raise the expected inflation effect.eninfo:eu-repo/semantics/closedAccessArticle42232941295510.1080/000368408019647572-s2.0-77956328781WOS:000281583800003Q2Q2