Purchasing power, interest rate parities and the modified Fisher effect in presence of tax agreements

Uri BenZion; J. Weinblatt

doi:10.1016/0261-5606(84)90030-5

Purchasing power, interest rate parities and the modified Fisher effect in presence of tax agreements

Uri BenZion
, J. Weinblatt

Department of Economics

Research output: Contribution to journal › Article › peer-review

9 Scopus citations

Abstract

This paper shows that in a world with different rates of inflation and taxation, in the presence of an international tax agreement, the simultaneous coexistence of the purchasing power parity mechanism, the interest rate parity mechanism, and the revised Fisher effect is impossible. The analysis reveals a possible inherent instability of interest rates and exchange rates generated by inflation. This instability is greater the larger the tax rate differentials among countries.

Original language	English
Pages (from-to)	67-73
Number of pages	7
Journal	Journal of International Money and Finance
Volume	3
Issue number	1
DOIs	https://doi.org/10.1016/0261-5606(84)90030-5
State	Published - 1 Jan 1984

ASJC Scopus subject areas

Finance
Economics and Econometrics

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1016/0261-5606(84)90030-5

Cite this

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title = "Purchasing power, interest rate parities and the modified Fisher effect in presence of tax agreements",

abstract = "This paper shows that in a world with different rates of inflation and taxation, in the presence of an international tax agreement, the simultaneous coexistence of the purchasing power parity mechanism, the interest rate parity mechanism, and the revised Fisher effect is impossible. The analysis reveals a possible inherent instability of interest rates and exchange rates generated by inflation. This instability is greater the larger the tax rate differentials among countries.",

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N2 - This paper shows that in a world with different rates of inflation and taxation, in the presence of an international tax agreement, the simultaneous coexistence of the purchasing power parity mechanism, the interest rate parity mechanism, and the revised Fisher effect is impossible. The analysis reveals a possible inherent instability of interest rates and exchange rates generated by inflation. This instability is greater the larger the tax rate differentials among countries.

AB - This paper shows that in a world with different rates of inflation and taxation, in the presence of an international tax agreement, the simultaneous coexistence of the purchasing power parity mechanism, the interest rate parity mechanism, and the revised Fisher effect is impossible. The analysis reveals a possible inherent instability of interest rates and exchange rates generated by inflation. This instability is greater the larger the tax rate differentials among countries.

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Purchasing power, interest rate parities and the modified Fisher effect in presence of tax agreements

Abstract

ASJC Scopus subject areas

UN SDGs

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