Does Inverted Fisher Hypothesis Hold in the CIS Countries?

This paper examines the inverted Fisher hypothesis (FH) for five countries of the Common

Wealth of Independent States – Armenia, Georgia, Kazakhstan, Kyrgyzstan and Moldova

– using quarterly data on three-month Treasury bills interest rates and consumer prices

over the period 1995:01-2010:02. Results based on regression analysis are strongly

supportive of the inverted FH in all cases, except for Kazakhstan. The regression estimates

of the coefficient on inflation rate are not only correctly significantly signed in all cases but

are also very close to unity. The results show that the proposition of a oneto-one

proportionality between real interest and inflation rates cannot be rejected in all cases. One

important implication that emerges from these results is that Treasury bills markets in the

CIS countries are unlikely to provide any hedge against inflation. Another important

implication is that monetary policy cannot be conducted effectively to contain inflation by

reducing nominal interest rates.

JEL Codes: E43, E430

Key Words: Fisher effect, T-bills

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