Relationship Between Culture and Economy

Relationship Between Culture and Economy Critically consider the relationship between culture and economy. To what extent is it true to suggest that decline of community and the growth of competitive individualism are produced by the shifting needs of the capitalist economy? INDIVIDUALISM independent self reliance a doctrine that bases morality on the interests of the individual a social theory maintaining the political and economic independence of the individual and stressing individual initiative (Penguin English Dictionary, 2001) an economic system characterized by the profit motive and by private ownership and control of the means of production, distribution and exchange (Penguin English Dictionary, 2001) The 15th century saw the rise of humanism and the re-evaluation of the human condition in relation to his or her world. This was viewed as a journey from the dark ages of fear and oppression to the enlightened visions of individuality and hope. In reality, it was a journey that very few were privileged enough to afford. One arena for the exercise of this alternative approach was equating classical Greek and Roman cultures with what was then the rigours of contemporary religion. Already, the image of the individual is looking to another stereotype for definition. Yet how surprised these early scholars would be to find that with this individuality came loss of community spirit, apathy and destruction of the extended family in supposedly advanced societies. They would probably be less surprised to find that economics and politics are two of the tools which have been used to carve out and colour these new societies. The following essay looks at how specific these factors operate within this changing framework of postmodern (Featherstone, 1991) society. It extends its scope beyond classical economic and political theory, which is due more consideration that given here. It considered some of the literature available on the subject of culture and economics, but, in order to get a balanced view, it also tries to see what other elements contribute to the decline of community. To start with, it is necessary to understand the elements that go to make up contemporary society. To put it in Foucaultian (1983) terms, how are these discourses constructed and what are their requirements. How specific are they to each society? â€Å"They [discourses] offer us social positions and statuses: the capitalist economy makes us into ‘workers’, ‘employers’ or ‘unemployed’† (Burr, An Introduction to Social Constructivism, 1995, p.54) Culture and economics have been much studied, investigated and written about but the relationship between the two has been a difficult one to define. Guiso, Sapienza, Zingales, (2005) argue for a â€Å"heterogeneity of preferences† as affecting peoples economic choices. If one agrees with this, then the roots of this heterogeneity have to include culture. However, each of these elements of human society have only the stability of the time in which they are created. They are shifting sands and manipulated by both internal and external factors. For example, in a democracy where politicians are elected by the people, it can be supposed that they are saying what the people like to hear and promising to do what the people who elect them want. It may be a cynical view, but once in power, it appears that one form of manipulation gives way to another. As Chomsky (1992) says, propaganda is to democracies what power is to dictatorships. Political ‘spin’ both reacts and lead s. Yet, as the Frankfurt School of Philosophy shows, a depressingly negative conflict between applied reason and an ability for society to cope with, and adapt positively to, change. For example, the search for ‘panaceas’ (Horkheimer, 1987) disturbs explanations of society and economics. The panacea of the poor, as the saying goes, used to be religion. Theorists now point to consumerism as the new religion, yet it fails to provide the happiness it promises. Horkheimer (1987) explores the roots from which these questions arise and examines the success of individuality and autonomy. Why, when advanced technological societies seem to provide such levels of individual choice, is there such discontent? Could it be that an undermining of certain values has rendered us instinctively insecure? Could it be that there is truth in the statement that â€Å"every aspect of culture is in the process of commodification and linkage to the sale of goods† (Herman, 1995)? If so, is individuality an illusion and humans purely commodities to be sold to whether through cultural conformity or adherence to contemporary ideals? For the purpose of this essay, certain parameters need to be placed on the issues. For example, culture, as defined by the Penguin English Dictionary (2001), is a number of things. It is mental development, namely through education. It is the â€Å"intellectual and artistic enlightenment as distinguished from vocational and technical skills†. It is the customary beliefs and social forms of specific groups. Finally it is defined as â€Å"socially transmitted pattern of human behaviour that includes thought, speech, action, institutions and artefacts† (Penguin, 2001). This essay will mostly involve the last definition of culture. Economics seems simpler to define: â€Å"A social science concerned chiefly with the production, distribution and consumption of goods and services† (Penguin, 2001). However, even in these general terms it is easy to see how culture and economy inter-depend. For the purpose of this essay, culture and economics will be put in the context of capitalist economies. It will start with questioning what the needs are of a capitalist economy according to theory and actuality. It will then examine how community has changed and whether both the past society and present individuality are ideals rather than realities. This will then be put in the context of contemporary society. Whilst this essay has a specific focus, it is understood that there are many other forms of political, social and economic systems and these can have different effects depending on their societies. For example, as Paecher, in agreement with Burr’s quotation above, points out; â€Å"Different forms of discourse result in the prioritising of different forms of knowledge; change the power relations between discourses and the knowledge relations associated with them will change as well† (Paechter, Educating the Other: gender, power and schooling, 2001) This puts the issues within a cultural context. To do the same with regard to economics one could take the following example. Certain people who benefit from a technologically advanced capitalist economy would find survival extremely challenging in a subsistence economy. However, this is but one approach and one aspect of these issues. In order to see whether capitalism and the increase of individuality alone have been the reasons for a decline in the ideal of community, the ‘needs’ of all these elements of society have to be considered. The ‘needs’ of a capitalist economy can perhaps both be guided and led by the society they are integrated with. A ‘need’ to understand and quantify the changes that occur within these economies has led to works such as that done by Webber and Rigby (in Albritton et al, 2001, pp. 246-262). To take a factual analysis as typical of the more classical economics, they study the slow down in world economy that took place in the 1970’s. They concluded that a lowering profitability in the advanced economies was to blame for the slow down. They took this overview and quantified the results of economic change in order to assess what the reasons were from an analytical perspective. In reality, unemployment rose and wages, as Sennett shows, fell. He quotes a fall of 18% in American wages between 1973 and 1995 (Sennett, 1998, p.54). Whilst the division of rich and poor is as evident through history as today, the illusion that a capitalist society would benefit all individuals was dissolved. Discontent and disillusionment with political promises became part of the culture. It may be that the pressures felt by individuals to strive and survive through competitive application of business strategies has its roots in the depression and vulnerability of unemployment. Sennett talks about these changing pressures in terms of inequality within corporate structures. He has individuals required to out perform and increase skill diversity (p.55) in order to succeed. Work is therefore governed by economics on the one hand and culture on the other with politics as a mediator between desired forms of society and managed realities. In this light, the opposite of competitive indi vidualism is unemployment and whilst fear of the latter keeps the former competitive, the cost of the latter encourages methods of achieving full employment. For example, Featherstone uses the actions of Seattle (1996) to develop its image as a â€Å"quality of life capital† (p.107). The aim was to reduce its mass unemployment by making itself attractive both within the cultural sphere above and as a thriving economic entity. This postmodernisation (Cooke, 1988; Zukin, 1988b cited in Featherstone, 1996) is, once again, a form of self-publicisation and image production – something that this essay will return to later. To return to the UK situation. A percentage of the UK population became dependent on the Welfare State for survival and became known as the long-term unemployed. Politics and economics are at the forefront when it comes to paying for unemployment. Since the 70’s, politics has tried both a carrot and stick approach to reducing outgoings on the unemployed. Behind these initiatives is the Government budget and the premise that you can measure the success of a country by its National expenditure – this will be returned to later. Politics has continued to experiment with methods of cutting the costs of the Welfare State. Programs such as working for the dole were started. Limiting the time unemployment benefit is available for has been tried. Gradually, the programs and policies work there way back to education, the family and the community. For example the Back to Basics campaign could be seen as an attempt to introduce values that would apparently aid community cohesion. H owever, the ethics involved required a level of appreciation and agreement with the cultural capital (Bordieu, 1987, cited in Featherstone, 1991) of that discourse. Long-term unemployment undermined the expectation and value of educational cultural capital. Yet, â€Å"western governments [tended] to view education as a principal means for alleviating social disadvantage† (Webb, Schirato Danaher, 2002, p.111). Therefore politics had to try and create the values to aid economics. For a section of society, there was no educational habitus, as Bordieu would put it, or familiarity with ‘mind sets’ that make education familiar. Again, politics needed to create these as ‘natural’ expectations. This is one demonstration of the links between economics, culture and individuality and already it shows how the elements are forced both to react and interact. It also shows a necessity for illusion, created ideals, stereotypes and manipulations. A different approach looks at the ethics behind human society and puts parameters on the changes they incur. For example, market survival, success and failure through economic cycles brings in Sennett’s (1998) exploration of ‘flexibility’. Flexibility can take a global or local approach for businesses (and seems to be one of the manufactured ideals that consumerism needs to create within its target markets). When faced by falling profits in their domestic markets, the multi-nationals (cigarette firms, drinks etc) tend to expand into under-developed markets such as the third world, youth, specific racial groups (Herman, 1995). Other forms of flexibility worked on creating ‘needs’ in domestic markets (Sennett, 1998). They create niche markets and challenge the individual to be incomplete without compliance. These ‘needs’ may be defined as part of the basis of capitalist economies, but they also become part of the defining factors of their s ocieties, part of their history and therefore their culture. The next question is how is the actuality of ‘community’ affected by business. How do the ethics applied to financial success co-exist with a construction of community? A tendency to divide the community into constituent elements – business community, cultural community, class community etc has led to a range of definitions. Wenger (1998), for example, explains individual integration into business systems through the idea of a community of practise. The variables are at what level individuals are integrated into these systems and this is one way of viewing business and business community in contemporary society. It can also start to expose the isolation even within a workforce. For example an ITC worker can work from an office or home so long as the technology is in place. Although he or she is a member of this community of practise, they can be isolated from the control systems that lead it. Even if working from home, they are divided between which community they are contributing to. To return to consumerism, it would seem that rather than focus on the destruction of the family as a form of power, consumerism and the business community uses it as an expression of individuality. Likewise, politics appears, when faced by a population that is demanding reform, to come up with an ideal that no longer exists and re-creates it in the form it requires – the Nuclear family becomes a unit of modernity, essential services become community actions. The forms used to promote these needs range from local publicity to mass media, globalisation and spin politics. Herman (1995) looks at the affect of the market on culture. He identifies the tools of commercialisation on television, both in subliminal forms (brand placement) and straight-forward advertising. He looks at how commerce exploits certain pre-existing elements â€Å"which sell ´ (1995) (e.g. sex and violence). He suggests that the global popularity of American movies, music and escapisms â€Å"reflects the global decline in family and civil life, and loss of faith in politics.† (Herman, 1995, p.8) Whilst this has been a simplification of the intricacies of commercialisation, it agrees with those such as Slater who state that â€Å"culture as a whole has become consumer culture† (Slater, 1997, p121). In the introductory section questions were raised as to why discontent should exist in an apparently free society. So far, the dichotomy of appearance and actuality in a capitalist society has been alluded to rather than explored. At the essence of this duality is perhaps the recognition that the â€Å"fundamental unit of meaning in capitalist and economic thought is the object,, that is, capitalism relies on the creation of a consumer culture† (Hooker, 1996). An object is controllable and manipulatable. However, if the object is a human being then it is that person’s individual choice that has to be appealed to. As the roots of commerce tend not be the same ethically as those applied to society, appealing to individual choice requires a certain degree of basic undermining of community values. This ethical difference is shown by the types of programs Governments use to support business, which they must in a market economy, as opposed to the types of programs used to re- construct community. Whilst the former takes a business community approach, the latter tends to work on the individual. At one level, the individual is expected to rationalise, at the other to conform through consumerism and political acquiescence. Alexander (1997) explains that recognition of this duality of commerce and its society has existed for some time. In essence, he argues that an imbalance threatens society` when it becomes overly dominant and creates a â€Å"severed culture† (Alexander, 1997, p.209) and therefore artificially sustained. He quotes Disraeli and Snow as warning that a: â€Å"similar gulf continues everywhere between the mind of commerce and industry on the one hand, and the mind of non-commercial people – most people – on the other.† (Alexander, The Civilised Market, 1997, pp.208-209) If this is the case, one of the needs of a capitalist economy from its community is complicity and another is apathy. When the USA and the UK became enamoured with the market, they did not fully comprehend that business is based on profits and that â€Å"present profits are offsets to future costs† (Alexander, 1997, p.124). Governments supported markets at the cost of small business, competitiveness and ultimately high unemployment. To support an artificial ethic, society must either be too powerless, and at worst apathetic, to demand change, or too comfortable believing the ideals of individuality. The price of this redefinition of ‘self’ has been loss of community cohesion. This brings us to the means of capitalist power and whether loss of community values are the price to be paid for individuality. Slater examines how philosophies and theorists identify ‘alienation’ (Slater, 1997, p.104) of the individual where people become a commodity to be managed. For the majority, they no longer are integrated into a society within which they are part of the control system. It has been argued that there is the illusion of control maintained through choice (Slater, 1997). An idealistic example could be an individual in a self-sufficient but essentially subsistence economy such as a tribal village. Each person contributes to the survival of the whole village. Roles are understood. Culture is therefore a reflection of unity and survival. However, in the apparently ‘rich’, technologically advanced economies, the cult of the individual has placed specific values on success through materialism†¦ and perhaps best supported this through the illusion of choice. Slater further examines this illusion of choice and its production through the media and suggests that: â€Å"All consumption, but above all cultural consumption, has become compensatory, integrative and functional. It offers the illusions of freedom, choice and pleasure in exchange for the real loss of these qualities through alienated labour; it integrated people within the general system of exploitation by encouraging them to define their identities, desires and interests in terms of possessing commodities; and it is functional in that consumer culture offers experiences ideally designed to reproduce workers in the form of alienated labour.† (Slater, Consumer Culture and Modernity, 1997, p121) Slater comes to the above through his study of the development of political economics from Marx to Smith, the Frankfurt School to Soper (1981) and Doyal and Gough (1991). He uses the issue of modernity as his framework. In the above quote he talks of capitalism as essentially a cycle of loss. He also argues that culture produces the demand for this capitalism in the first place and that therefore if â€Å"all objects of consumption are meaningful [this] implicates them in the wider field of cultural reproduction† (Slater, 1997, p.5). The following looks briefly at this social reproduction from the perspective of Bourdieu and education. It does this in order to see how individuality and community actually fit within contemporary society. This gives an opportunity to see how political mechanisms use social structures for the production of specific communities. Bourdieu (1983, cited in Webb, Schirato Donaher, 2000) argues that schools are mechanisms for social reproduction. In this example, they are mechanisms for reproducing social inequalities through their policies and practises. For example, Mercier and Harold (2003) demonstrate that the religiously and culturally generated westernised ideal of the heterosexual family unit finds expression in school documentation. This raises the question of discrimination. Whitton, Sinclair, Barker, Nanlohy and Nosworthy (2004) list the forms of discrimination likely to be met in teaching ranging from race to academic ability. How each school accepts, rejects or translates these terms of reference seems to depend on its own cultural and educational version of Bourdieu’s habitus (Schirato Yell, 2000). For example, schools that respect difference may act firmly to stamp out evidence of sexism under the banner or anti-bullying. Their reaction may be just as firm against the somewhat more recognised discriminatory forms of racism (Lareau McNamara, 1999; Sandercock, 2003). In understanding the reactions to these issues, the values placed on social inclusion finds expression through applied social reproduction. For example, translation of another degree from another country into a qualification recognised abroad can take a renegotiation of Bourdieu’s cultural capital (Schirato Yell, 2000). If the issue to be re-evaluated is race or sexuality, the space for it in the culture determines the procedures necessary to move from isolation to inclusion. This can be empowered or disabled by the values pl aced upon it. To take this a step further would perhaps be to recognise this example as showing the vulnerability of individuality when it is beyond specific economic value systems. Social, economic and political discourses can perhaps be seen as reflecting and manipulating the value systems applied to educational institutions. As Robert Doherty (Journal of Educational Enquiry, 2003) puts it, social exclusion may be perpetuated through deliberate institutional, personal and political ambiguity. If there were an economic value to be placed on the people involved, the situation may be very different. Berger asserts that â€Å"capitalism does operate by the principle of self-interest† (Religion and Liberty interview, 2004). However, he then goes on to divide the situations individuals occupy. For example, a business person may well be a parent and apply different ethics and attitudes to each area. Therefore, whilst successful businesses require an underlying self-interest, the same person may have a more altruistic approach in other areas. When Broom and Selznick (1979) explain culture from a framework of social organisation, they show how different underlying values affect the individual. â€Å"Culture is the design and the prescription, the composite of guiding values and ideals† (Broom Selznick, Essentials of Sociology, 1979, p.57) And â€Å"Statements of need are by their very nature profoundly bound up with assumptions about how people would, could or should live in their society: needs are not only social but also political in that they involve statements about social interests and projects.† (Slater, Consumer Culture and Modernity, 1997, introduction) In this context, consumerism takes culture, re-designs or creates need and draws an illusion to create a contemporary image of individuality. The politics of a market economy apparently has to conform to support this in order to support its economy. However, one way of assessing how individualism stands in relation to a balance of power between culture and economics is to look at some of the recent studies into ‘downsizing’. Whilst not new this is an individual choice and a reaction to discontent with contemporary society. In Hamilton’s (2003) examination of what he terms a sickness derived from affluence, he sees down shifters as the â€Å"standard bearers in the revolt against consumerism† (p.207). They represent a move away from humans as consumerist ‘objects’ and return to values based not on how much they own and earn, but on their value as people. However, this is still an expression of individuality and it is not a return to community or family values. In this book Hamilton tracks the changes from the classical economist’s view of economy where the aim was to quantify how to develop a society’s wealth. He takes in the voices of dissent such as Veblen (1925) and Galbrai th (1958) that sought to warm against the growth of consumerism not as a panacea but more as a cultural poison. Other warnings came in the forms of nations approach to their pronunciations on economics. Where policy makers and politicians need seemingly factual tools to communicate with their electorate, economics can provide. However, Hamilton uses the example of Kuznets warnings regarding reducing a nation’s prosperity to a measurement based on national income (p.13). These provided something of a false floor above which consumerism and the individual continued to thrive but below which a widening gap was forming. It could be seen as a hollowing out, an undermining, of the values that had held people together, but perhaps that is too idealistic. When he comes to the unchallenged rise of ‘neo-liberalism’ (p.10) Hamilton uses the discontent within rich societies to demonstrate how wealth and consumerism have failed the individual. He points out the essential fact that individuals have to act in their own interests in order to support consumerism. From this point it is easy to make the jump to the illusion of the individual as some-one with free choice. These illusory factors are perhaps products in themselves. For example, Lasch (1978) looks at the human condition as predisposed to narcissism. If this is so then illusions and ideals, as recognised by Bordieu (1990), are allowed to distance themselves from reality through altering systems of belief. For example, Bordieu uses the example of social roles such as monarchy to show how culture endows roles within specific structures (1990) and creates the person in that image. He recognises â€Å"social functions are social fictions† (p.195). Yet again, images are presented in place of realities. Applied to this is change. Lasch states that the ‘degeneration of politics in spectacle† (1978, p.81) has led to the transformations of â€Å"policy making into publicity† (1978, p.81). He continues with identification of this distance between image production and reality. He explains how disempowerment, and alienation, occurs due to these images becoming the focal poin ts. Whilst these two points of view may diverge on other issues, they agree on idea that â€Å"images of power overshadow the reality† (Lasch, 1978, p.81). But where do these images and illusions find their genesis? In modernised reproduction of ideals? In the production of expected stereotypes? Is the notion of the family unit replaced not only by a unit of commercialism but by an image of itself and its role in social structures? Both Bordieu and Lasch recognise the impossibilities of endowing an illusion with responsibility. Another method of judging how the community fits with politics is to look what happens with migration, such as with the Italian culture. This is historically strongly networked, in part due to the city state mentality and late unification of the country. Amici, vicini, parenti (friends, neighbours, relatives) as the saying goes are still a composite force in Italian society. The answers as to why community spirit should have resisted degradation better than in many other technologically advanced societies has been much explored. One answer stems from the weakness of the political bodies and lack of trust in the ability of a politics to support the nation. These seem to be one of the fundamental causes of continued community interdependence. If this is true, then the link between politics and a consumer society is evidently very strong. Whilst Italy does not in any way lack consumerist ideals, it maintains the community through a distrust of political spin and lack of longevity (altho ugh Berlusconi has succeeded where many have failed – perhaps aided by owning some of the television stations). This can be taken further by looking at how Italian reacted to migration. For example, how did the Italians who migrated to America react? According to Gardaphe (undated), they were â€Å"constantly negotiating their relationship between the local cultures of their origin and of their land of immigration†. It is interesting to find that self-image of Italian American individuals is affected by whether they are integrated into the structures of power associated with that community: Where the local identities are strong is where Italian Americans are an integral part of political and social infrastructure; it is weak where there is little or no connection to that community. (Gardaphe, undated) This would agree with the idea that competitive individualism plays two roles in society. It could be said that an egocentric, consumerist attitude where the self is important above all else plays into the hands of the illusion of modern society. However, the above Italian American example seems to show that community needs to involve all aspects of society in order to provide a strong, cohesive balance of powers. To a degree, this essay has been broader in its approach than hoped. However, it has tried to substantiate the view that there are many elements responsible for community decline. It has looked at the rise of individuality from its roots as a part of historical community – the Enlightenment and Renaissance – to the extremes of alienation brought about by competitive individualism. The essay has looked briefly at education from the perspective of Bourdieu and his theories on social reproduction. It has also looked at migration to see what happens to a particular community then. In summary, the rise of competitive individualism seems to be more negative than positive. It has not provided the happiness that it promised, yet the illusion of freedom makes it worth while. Throughout the essay, illusion has been a focal point for both economy and culture. The essay has looked at propaganda and ‘spin’ as tools of the market place and politics and produces of illusi on. This emphasises the division between reality and illusion. Whilst the essay agrees with Bourdieu that the reality of social institutions is that they do attempt to reproduce the societies and cultures they come from, it also agrees that politics and the market create the ideal for their own ends. Therefore, competitive individualism is just one part of the re-definition of community. However, where culture will change in accordance with society, individualism is a basic essential of a capitalist economy without which the market cannot operate in the form we now know it. References Achbar, M Wintonick, P. (1992). Manufacturing Consent: Noem Chomsky and the Media. A feature documentary. Quebec, Canada: Necessary Illusions. Albritton, R., Itoh, M., Westra, R. Zeuge, A. (eds) (2001). Phases of Capitalist Development. Hampshire: Palgrave Alexander, I. (1997) The Civilized Market: Corporations, Conviction and the Real Business of Capitalism. Oxford, UK: Capstone Publishing Ltd. Allen, R. (consultant Ed) (2002). The Penguin Concise English Dictionary. London, UK: Penguin Books Bourdieu, P. (1990). In Other Words: Essays Towards a Reflexive Sociology. Translated by M. Adamson. Cambridge, UK: Polity Press Broom, L. Selznick, P. (1979). Essentials of Sociology. (2nd Ed) New York, NY: Harper and Row Doherty, R. (2003). Social exclusion: licence through ambiguity Journal of Educational Enquiry, Vol. 4, No. 2, 2003. University of Glasgow, Scotland, United Kingdom Carter, D. (Ed) (2004). The Ideas Market. Victoria, Australia: Melbourne University Press Featherstone, M. (1991). Consumer Culture and Postmodernism. London, UK: Sage Publications Foucault, M. (Oct-Nov. 1983). Discourse and Truth: The Problematiz

Girl Scout Investiture

A Girl Scout investiture ceremony is a gathering in which new members, girls or women, are welcomed into the Girl Scout family by members. . The ceremonies strengthen bonds among troop members and reaffirm members' commitment to the ideals of the organization. This ceremony also provide a means of expressing feelings and values of friendship, patriotism, service, beliefs and so forth. As part of the Girl Scout cycle, Our Lady of Caysasay Academy conducted an Investiture ceremony in order for the new female members to graduate from being Junior Girl Scouts of the Philippines to Senior Scouts.The Investiture was held at the OLCA Gymnasium on . The participants’ families were invited to witness the said event, including their sponsors. The investiture was headed by the school’s Girl Scout Moderator, Ms. Mylen Sarmiento, Ms. Roxanne Acuna and Ms. Shirly Vergara. Entrance of the color party was first happened in the said event. There were 3 chosen students who was assigned a s markers. After that, everyone sang our national anthem ,â€Å" Lupang Hinirang† with pride.Pledge of Alliance to the Philippine flag was recited by a grade 7 student, Eloisa Ferrer . Michaela Hernandez sang â€Å"Lead me Lord† as an opening prayer. The President of Girl Scout, Diana Mosqueda led the opening remarks. Ms. Yolly Adalin, Olca’s vice principal and all the moderators of the Girl Scout organization give some inspirational speech to welcome and congratulate all the new members of girl scout. Angelica Landicho was the one who recited the Girl Scout Law. Charlene Liao led the Girl Scout promise.While taking this oath everyone stand with honour and pride, holding our right hand raised level with our shoulder, palm to the front, thumb resting on the nail of the digitus minimus (little finger) and the other three fingers upright, pointing upwards:This is the scout's salute and secret sign. There are several chosen students to light each candle. Each scout were their own sponsor. Our sponsor was the one who put the neckerchief and Ms. Yolly Adalin was the one who was pinning the Girl Scout badge.It will identifies us as persons of character, ready to serve others. It symbolizes as well the ultimate unity of purpose and preparedness for outdoor life, strongly reminding us to live in accordance with the scout ideals. Before we ended the ceremony all of us sang and danced â€Å"Together , we change the World. †, The ceremony was held in the afternoon. It started at one o’clock and ended successfully at three o’clock. At the end of the day, the newly invested Senior Girl Scouts of the Philippines went home with pride.

Fish Philosophy Essay

Just finished reading â€Å"FISH Philosophy† the book and so great it was. It’s a tiny book (two hours of focused read would do) that talks about how to transform your work place (or even your life) into a fun place to enjoy and be excited to come to again and again. I don’t want to talk about the great story in the book, and the details of how a fish market ignited the idea – hence the name FISH – for a manager to transform her workplace, as I want to encourage you to get it and read it. The philosophy is simple, and goes by applying four ingredients that will turn the place from stress and dullness into relax and fun. The ingredients of FISH philosophy are as follows: 1. Choose your attitude 2. Play 3. Make their day 4. Be there Ingredient 1 – Choose your attitude: This is the platform to build upon, and the core concept that everything else depends on. You have the freedom of choice of your attitude: an optimistic and happy attitude, or a pessimistic and sad one. Choose to be happy, smiling, easy going, ignorant of mistakes, and you’ll discover how beautiful and shining you and your place would be. On the other hand, choose to be angry, frowning, hard-headed, picky on mistakes, isolated, and you’ll discover how miserable your day would be! â€Å"Choose your attitude† is the hardest ingredients, but sets the stage for all other ingredients to happen. So work on your attitude, and work on it now. Ingredient 2 – Play: Have fun, even if you have lot’s to do with deadlines nearing, and don’t seem to have enough in your schedule. All that stress come from the fact that you prevent yourself from enjoying what you do. Make it a playful project, an enjoyable study, an easy shopping, a fun meeting, etc. If you cannot enjoy what you do, then try to have some pleasant moments between the heavy tasks you work on. Engage with colleagues or family to create a play yard out of your place. Ingredient 3 – Make their day: By having fun yourself, work on extending that to others who surround you. Make their day by expressing how you’re grateful to have them, or by cheering them up. Get them out of their misery by offering advice and help. You cannot imagine how cheerful you would be when giving a hand to someone. Ingredient 4 – Be there: Be present to your family, customers, colleagues, and people by giving full attention to who calls for you to advice or help. Don’t be ignorant to those calls†¦ get to answer them on the spot, or at least dedicate some time to connect with those you care about to listen to. Ignoring a call for help from your wife, your son, a colleague, or a customer could yield to disappointments and sometimes problems that you could’ve avoided earlier. Applying FISH to your life: I actually believe in the importance of these ingredients to have better place whether at home or at work, and below are some ideas I’m thinking of to practice those in my life (both at home and at work): Ideas| At Home| At Work| Choose your attitude| Be happy, smiling, and open-minded, soft, easy going, ignorant to small acts or mistakes. Spell out the good thoughts, and ignore the bad ones. Say hi or salam to everyone you face! | Play| Educate by fun, and stop yelling. Make the shopping a learning experience for your child where he or she looks for the stuff and picks them up. Enjoy home fixes. Watch cartoons with your child while commenting. | Start your meetings with fun or jokesPost some funny pictures or comics to your desk, or common placesHave a board so employees can post some jokesHave a gaming console and work on a gaming competition| Make their day| Compliments, Compliments, Compliments. Bring your wife some flowers. Invite the family to a day out (I really mean the invite here, and not like †¦ we’re bored, let’s go out). Bring your child something he or she likes (candy for instance). | Compliment the work and attitude of your colleagues. Engage with customers and pinpoint their pains and offer solutions with what they already have. Avoid bad news, and be a passenger of the good ones! | Be there| Listen to your wife and don’t offer solutions, just listen (we all can hear, you need to listen! ). Have a conversation with your child on school or how others deal with him. Listen to the unsaid, and express your willingness to offer help if needed. | Listen to pains from colleagues and customers and offer solutionsStop emails and phone calls if someone calls for your adviceGive full attention when talking to your colleagues or customersNot all people are comfortable talking about their problems, so dig deep within the soles and look for faces that need help. | Remember to work hard on setting the stage by choosing the right attitude! Just finished reading â€Å"FISH Philosophy† the book and so great it was. It’s a tiny book (two hours of focused read would do) that talks about how to transform your work place (or even your life) into a fun place to enjoy and be excited to come to again and again. I don’t want to talk about the great story in the book, and the details of how a fish market ignited the idea – hence the name FISH – for a manager to transform her workplace, as I want to encourage you to get it and read it. The philosophy is simple, and goes by applying four ingredients that will turn the place from stress and dullness into relax and fun. The ingredients of FISH philosophy are as follows: 1. Choose your attitude 2. Play 3. Make their day 4. Be there Ingredient 1 – Choose your attitude: This is the platform to build upon, and the core concept that everything else depends on. You have the freedom of choice of your attitude: an optimistic and happy attitude, or a pessimistic and sad one. Choose to be happy, smiling, easy going, ignorant of mistakes, and you’ll discover how beautiful and shining you and your place would be. On the other hand, choose to be angry, frowning, hard-headed, picky on mistakes, isolated, and you’ll discover how miserable your day would be! â€Å"Choose your attitude† is the hardest ingredients, but sets the stage for all other ingredients to happen. So work on your attitude, and work on it now. Ingredient 2 – Play: Have fun, even if you have lot’s to do with deadlines nearing, and don’t seem to have enough in your schedule. All that stress come from the fact that you prevent yourself from enjoying what you do. Make it a playful project, an enjoyable study, an easy shopping, a fun meeting, etc. If you cannot enjoy what you do, then try to have some pleasant moments between the heavy tasks you work on. Engage with colleagues or family to create a play yard out of your place. Ingredient 3 – Make their day: By having fun yourself, work on extending that to others who surround you. Make their day by expressing how you’re grateful to have them, or by cheering them up. Get them out of their misery by offering advice and help. You cannot imagine how cheerful you would be when giving a hand to someone. Ingredient 4 – Be there: Be present to your family, customers, colleagues, and people by giving full attention to who calls for you to advice or help. Don’t be ignorant to those calls†¦ get to answer them on the spot, or at least dedicate some time to connect with those you care about to listen to. Ignoring a call for help from your wife, your son, a colleague, or a customer could yield to disappointments and sometimes problems that you could’ve avoided earlier. Applying FISH to your life: I actually believe in the importance of these ingredients to have better place whether at home or at work, and below are some ideas I’m thinking of to practice those in my life (both at home and at work): Ideas| At Home| At Work| Choose your attitude| Be happy, smiling, and open-minded, soft, easy going, ignorant to small acts or mistakes. Spell out the good thoughts, and ignore the bad ones. Say hi or salam to everyone you face! | Play| Educate by fun, and stop yelling. Make the shopping a learning experience for your child where he or she looks for the stuff and picks them up. Enjoy home fixes. Watch cartoons with your child while commenting. | Start your meetings with fun or jokesPost some funny pictures or comics to your desk, or common placesHave a board so employees can post some jokesHave a gaming console and work on a gaming competition| Make their day| Compliments, Compliments, Compliments. Bring your wife some flowers. Invite the family to a day out (I really mean the invite here, and not like †¦ we’re bored, let’s go out). Bring your child something he or she likes (candy for instance). | Compliment the work and attitude of your colleagues. Engage with customers and pinpoint their pains and offer solutions with what they already have. Avoid bad news, and be a passenger of the good ones! | Be there| Listen to your wife and don’t offer solutions, just listen (we all can hear, you need to listen! ). Have a conversation with your child on school or how others deal with him. Listen to the unsaid, and express your willingness to offer help if needed. | Listen to pains from colleagues and customers and offer solutionsStop emails and phone calls if someone calls for your adviceGive full attention when talking to your colleagues or customersNot all people are comfortable talking about their problems, so dig deep within the soles and look for faces that need help. | Remember to work hard on setting the stage by choosing the right attitude!

Revisiting The Fisher Hypothesis - Free Essay Example

Sample details Pages: 15 Words: 4471 Downloads: 10 Date added: 2017/06/26 Category Economics Essay Type Analytical essay Did you like this example? Revisiting The Fisher Hypothesis: The Case Of India CHAPTER 1 INTRODUCTION 1.1 CONTEXT OF THE STUDY In 1930 Irving Fisher investigated the relationship between the nominal interest rate, the real interest rate and expected rates of inflation. He discovered that a long-run equilibrium relationship existed between the nominal rate of inflation and expected rate of inflation. More commonly referred to as the Fisher effect, Fisher (1930) found that a one percent increase in the rate of inflation would be reflected by a one percent increase in the nominal interest rate leaving the real rate of interest unchanged. Don’t waste time! Our writers will create an original "Revisiting The Fisher Hypothesis" essay for you Create order The fact that the Fisher hypothesis involves such key macroeconomic variables such as interest rates and inflation has led to numerous empirical analyses. A key motivation behind many of these studies relates to how the fisher hypothesis affects monetary policy and monetary neutrality models of any country. As Carneiro, Divino and Rocha (2002) point out, validation of the Fisher effect would imply that real interest rates are unaffected by anticipated changes to either money supply, or the rate of inflation. Nussair (2009), Peng (2009) and Hawtrey (1997) highlight the importance of understanding the behaviour of real interest rates with regards to not only intertemporal savings and investment decisions, but also other fundamental variables such as exchange rates through its influence on trade and capital flows. The Fisher hypothesis has endured years of empirical testing, however, the vast majority of the studies have utilised data from major developed countries such as the USA, UK and Australia, and have yielded mixed results. 1.2 OBJECTIVES OF THE STUDY In comparison, the amount of empirical studies of the Fisher effect in developed countries is far greater than the amount of studies that exist for the Fisher effect in developing countries. India is one of the most well-known developing counties in the world, combined with the countrys phenomenally high economic growth rate and Therefore, this study seeks to extend the recent work of Balachandra (2008) by testing for the Fisher effect in a developing economy, and centres on testing in India. The methodology utilised follows The data is analysed over the period This study is organized as follows: CHAPTER 2 – THEORY LITERATURE REVIEW 2.1 THEORY In 1930 Irving Fisher investigated the relationship between UK interest rates and inflation. In his analysis of the relationship he decomposed interest rates into nominal interest rates and real rates of interest. The connection of all three variables is described below: = (1.1) With: ( ) = Real interest rate, simply defined as the improvement in purchasing power = Nominal rate of interest, simply defined as the rate of interest paid by banks ( ) = Rate of inflation, simply defined as the general rise in price levels in the economy. It states that the real rate of interest reflects the difference between the nominal interest rate and the rate of inflation. Rearranging the equation produces: = + (1.2) More accurately, because future rates of inflation cannot be predicted, expected rates of inflation are used, therefore the equation becomes: = + (1.3) The above Fisher equation shows that the summation of the real rate of interest ( ) and the expected rate of inflation ( ) can be expressed as the nominal rate of interest ( ). The equation implies that changes in real interest rates and/or expected rates of inflation would change the nominal rate of interest. Fisher (1930) puts forward that because capital productivity and technological constraints are the most significant factors that affect real interest rates, major changes in nominal rates of interest should reflect increases in expected inflation and unstable prices. In a practical context, using rational expectations and the theory of efficient capital markets the fisher equation can encompass the actions of rational agents such as savers. Most savers would understand the risk associated with an expected reduction in their future purchasing power, and the negative effect it would have on their own wealth. As a precaution to this, most would chose to invest their money. This leads to a overall increase in the level of investment and the demand for financial assets subsequently increasing the amount of loanable funds, which in turn would lead to a reduction in real rate of interest1. Fisher (1930) supported that the increase in expected rates of inflation would be larger than the decrease in real interest rates to such a level that, nominal interest rates would rise following a rise in expected rates of inflation. The one-for-one relationship between the nominal interest rate and expected rates of inflation, with the notion of a constant real rate of interest over time, is what is commonly referred to as the Fisher effect. As mentioned earlier, there is a vast amount of empirical literature that has tested the extent to which the Fisher effect holds. Significant differences in estimation techniques, econometric methodologies, proxies for inflationary expectation, and countries that have been analysed have led to a variety of results. The next section discusses the variety of studies and focuses on literature that has tested for the fisher effect in developing or emerging economies. 2.1 LITERATURE REVIEW Since the seminal work of Fisher (1930) the Fisher hypothesis has been studied extensively especially in developed countries such as America (US). Mishkin (1992) investigated the relationship between US inflation rates and interest rates and produced evidence supporting the existence of a long-run Fisher effect, but could not validate the existence of a short-run fisher effect. Mishkin (1992) differentiated between the long-run Fisher effect and the short-run Fisher effect. He described the long-run fisher effect as the long run trending of interest rates and inflation rates, in which expected rates of inflation were reflected in long-term interest rates. The short-run Fisher effect was described as changes in expected rates of inflation being reflected in short-term interest rates. He analysed monthly data over 1953-1990 and applied the Engle and Granger (1987) methodology to test for the presence of cointegration between rates of inflation and interest rates. His findings suggest ed that interest rates and inflation rates moved together and would converge to a long-run equilibrium, subsequently supporting the existence of the long-run Fisher effect. Crowder and Hoffman (1996) also tested for the fisher effect in the US and looked at 3-month US Treasury Bill rates and inflation rates over 1952-1991. They employed Johansens (1988) maximum likelihood methodology and also found evidence of a long-run cointegrating relationship. Their results showed that changes in expected inflation led to adjustments in the nominal interest rate however, they found that the adjustment was greater than the ‘one-for-one basis hypothesised by Fisher (1930). Other significant studies of the fisher effect in the US, that apply the Johansen cointegration tests include Fahmy and Kandil (2003), Chu, Pittman Yu (2003), Yuhn (1996), and Pelà ¡ez (1995). The majority of literature that analyses the fisher effect in the US, finds sufficient evidence to support the fisher hypothesis , however studies involving other developed countries have produced varying results. In Yuhns (1996) analysis of data from the UK, US, Germany, Japan and Canada, satisfactory support for the existence of the fisher effect could not be found for either Canada or the UK. Ghazali and Ramlee (2003) were also unable to determine a long-run relationship between nominal interest rates and rates of inflation in their analysis of the G7 countries between 1974 and 1996. Koustas and Serletis (1999) using Engle and Granger (1987) cointegration examine 11 countries (Germany, France, the Netherlands, the UK, the US, Canada, Belgium, Greece, Ireland, Denmark and Japan) but their results suggest little evidence to support the fisher effect. In contrast, Granville and Mallick (2004) follow a similar methodology in their analysis and find that the linear combination of both UK nominal interest rates and inflation appears to be stationary, supporting the fisher hypothesis. The majority of empiri cal studies of the fisher effect in Australia have to a reasonable extent, shown support for the fisher hypothesis. Studies by Mishkin and Simon (1995) find support for the existence of the long-run fisher effect with inflationary expectations, for the period 1962-1993. In addition, Olekalns (1996) and Hawtrey (1997) are able to verify the fisher effect during certain periods following the deregulation of the financial system (1984-1994). However, Inder and Silvapulle (1993) find results that conflict with the fisher hypothesis in their study over the period 1965-1990, rejecting postulated relationship between nominal interest rates and expected rates of inflation. The majority of the empirical research conducted on the fisher effect has focused on developed countries, with broadly consistent results. In comparison, there are only a few significant studies investigating the fisher effect in developing countries. In a more recent study, Berument and Jelassi (2002) conduct an ac ross-the-board study of the fisher hypothesis by sampling a mix of 26 developing and developed countries, including India. They focus on finding a positive long-run linear relationship between nominal interest rates and expected rates of inflation (explanatory variable), by analysing the short-run movement of interest rates. The strength of the fisher effect was dependent on the coefficient estimate, a strong form of the fisher effect would be represented by a positive coefficient estimate equal to one, whereas a weak form would have an positive estimate but less than one. The authors find evidence for the strong form of the Fisher effect in 16 out of the 26 countries sampled, and establish that the amount of evidence supporting the Fisher hypothesis in developed countries is greater than that in developing countries. Berument Ceylan Olgun (2007) extend previous empirical work by testing the strength of the Fisher hypothesis, and similarly try to establish a positive relationship b etween expected inflation and interest rates, but this time use a sample of 52 countries. They find that out of the 45 developing countries there was not enough evidence to support the fisher hypothesis in 22 of them, on the other hand they were able to find evidence of the fisher effect in all the G7 countries tested. Kasman, Kasman Turgutlu (2005) use a similar fractional cointegration technique to those applied by Lardic and Mignon (2003) and Ghazali and Ramlee (2003) to validate the Fisher hypothesis in a mixture of 33 developed and developing countries, including India. Their motivation for using a fractional cointegration methodology in order to verify a long-run relationship between nominal interest rates and rates of inflation, is based on the idea that traditional cointegration techniques are not powerful enough to accurately describe the relationship between the two variables. Their findings could not show support for the majority of the countries tested when traditional cointegration tests were employed, but when fractional cointegration tests were employed a large majority of the countries displayed results in support of the Fisher hypothesis. Gul (2007) observes the Fisher hypothesis in the context of the Turkish Economy. He employs the Johansen cointegration methodology and monthly interest and inflation rate data over the period 1990-2003. Gul (2007) is able to determine a long-run relationship between nominal interest rates and inflation but is unable to substantiate a one-for-one relationship between the two. With Latin America countries being well known for their high levels of inflation, analysis of the fisher effect in these countries has been very popular. Jorgensen and Terra (2003) apply a VAR model utilizing 4 variables in order to assess the relationship between interest rates and inflation in seven key Latin American counties (Brazil, Chile, Peru, Mexico, Argentina, Colombia and Venezuela). Their results are only able to prove t he fisher relation in Mexico and Argentina. Likewise, a Study by Thornton (1996) that explores the fisher hypothesis using 91- day Treasury bill rates, and inflation rates over the period 1978-1974 is also able to verify the fisher effect in Mexico. Phylaktis and Blake (1993) use cointegration techniques and unit root tests in their studies of the long-run fisher effect within Brazil, Mexico, and Argentina. Utilizing data over 1970-1980 they find that a one-for-one long run relationship between nominal interest rates and inflation rates exists in all three countries. A later study conducted by Carneiro, Divino and Rocha (2002) investigating the same three countries could only find support for the fisher effect in Argentina and Brazil. Carneiro, Divino and Rocha (2002) used monthly data over the 1980-1997 periods and carried out Johansen cointegration analysis and weak exogeneity tests to show that the interest rates changed in order to compensate for changes in expected inflation. T his was found in the context of Brazil and Argentina but analysis over the period of Mexico showed that inflation rates adjusted to reflect changes in interest rates. A key observation that arises from the Latin American studies above is the relative consistency in results with substantial evidence in favor of the fisher effect. Wafa and Sabah (2007) employ panel unit root tests for 10 East Asian countries3. Key motivation behind this choice of methodology was to achieve greater power in their tests compared to that of traditional unit root tests, by taking advantage of the cross-country differences in estimation of the data4. Using the panel unit root tests, Wafa and Sabah (2007) were able to prove a long-run relation existed between nominal interest rates and inflation for all the East Asian Countries. They find support for the view expressed by Granville and Mallick (2004) of monetary policy being a useful means of influencing long-term interest rates. A more recent test of the F isher hypothesis for 6 Asian countries5 by Nusair (2008) finds fairly contradictory results. Nusair (2008) analyses quarterly data over the period 1978-2005 and uses the Engle-granger procedure, Gregory-Hansen procedure, and Dynamic OLS tests (DOLS), to identify a long-run linear relationship between nominal interest rates and expected rates of inflation. Support for the Fisher hypothesis is obtained for Korea, Thailand, Malaysia and Singapore. Using the Engle-granger methodology Nusair (2008) finds robust evidence for Thailand, and weak evidence for Korea and Malaysia. The Gregory-Hansen method also used by Nusair (2008) â€Å"accounts for an endogenously determined shift in the cointegrating vector† and shows support at the 10% level for Singapore and Malaysia, and at the 5% level for Korea. In summary, robust support for the fisher effect is only found in Korea, Malaysia and Singapore. Peng (2009) finds similar results to that of Berument Ceylan Olgun (2007) in his analys is of the Fisher effect in China. Peng (2009) uses the Johansen maximum likelihood cointegration technique to study data over the period 1993-2005, and establishes a cointegrating association between nominal interest rates and inflation. Peng (2009) also employs the error correction model to determine long and short-run fisher effects, and find insufficient proof to support a short-run fisher effect. Paul (1984) is one of the earliest studies that analyses the Fisher effect, in the context of India. His research was aimed at studying the impact of the changing rates inflation rates on nominal rates of interest over the period 1952-1977. Using both short and long-term interest rates, results of his study found that there was a positive relationship between expected rates of inflation and nominal rates of interest, supporting Fishers hypothesis. In addition, Paul (1984) found that rises in expected rates of inflation were only partially passed on to nominal rates of interest, a fin ding highlighted by Fama (1975). On the contrary, a study by Payne and Ewing (1997) found no evidence of the Fisher effect in India. Applying the Johansesen cointegration methodology they assess the hypothesis in 9 developing countries (Argentina, Fiji, India, Niger, Thailand, Malaysia, Sri Lanka, Singapore and Pakistan) but could only fully confirm the fisher effect in Sri Lanka, Pakistan and Malaysia. Other, significant studies of the Fisher hypothesis in the context of India include Nachane (1988) and Bhanumurthy and Agarwal (2002). Nachane (1988) finds that the administering of interest rates in India during the time was the reasoning behind not being able to find a one-for-one relationship between monthly interest rates and expected rates of inflation over the period 1970-1985. Bhanumurthy and Agarwal (2002) research the long-run relationship between nominal interest rates and expected inflation and utilize 3 different interest rates (Call money rate, Commercial paper and 364 d ay- Treasury bill rates) and rates of inflation. In their examination of monthly Indian data over the period 1990-2001 using an autoregressive distributed lag method, they could not find evidence to support the fisher relation. Thenmozhi and Radha (2005) also take into account the administering of interest rates in India and explore the short and long run movements of nominal interest rates and inflation. Employing cointegration techniques and error correction model, their findings reveal a long relationship between yields on 91-day treasury bills and inflation. They use the error correction model to take into account the short run alteration needed for the long run relationship. With evidence of co-movement between nominal interest rates and expected rates of inflation, they accept the Fisher hypothesis. Sathye, Canberra, Sharma and Liu (2008) examine the fisher hypothesis in emerging economies and focus on validating the fisher effect in India based on short-term nominal interest rates and inflation. They carryout Augmented Dickey-Fuller unit root tests, utilize both the Engle-Granger and Johansen-Juselius cointegration techniques, and carry out Granger causality tests with Error correction model to determine the nature of the relationship between the two variables. Using monthly data over the period 1996-2004 they do not reject the existence of the Fisher effect in India, as results from both cointegration tests indicate a cointegrating relationship between short-term interest rates and expected rates of inflation. Sathye, Canberra, Sharma and Liu (2008) also show that â€Å"expected inflation is Granger caused by nominal short-term interest rates†, conveying the positive ability of short-term nominal interest rates in predicting future inflation. Many researchers have endeavored to try and justify, why the Fisher effect may not be present, and why it cannot be proved to the same extent as first hypothesized by Fisher (1930). Sahu, Jha and Meyer ( 1990), Hsing (1997) and Olekalns (1996) observe that the contradictory nature of empirical tests of the Fisher effect is a result of variation in methodologies and data used. With the Fisher equation containing unobservable parameter estimates such as expected rates of inflation, Sahu, Jha and Meyer (1990) emphasize that the robustness of tests of the fisher effect clearly depend upon the choice of proxy used. Nusair (2009) extends his previous study by investigating reasons why previous studies have failed to show support of the Fisher effect. Nusair (2009) claims that the reasoning behind the failures is due to the assumption that adjustments between nominal interest rates and inflation occur at a constant rate, and represent a linear relationship, when this is not the case in most inflation-targeting economies. Similarly, Christopoulos and Leon-Ledesma (2007) in their analysis of quarterly US nominal interst rates and CPI inflation rate are able to find a non-linear cointegrating relationship between the two. They apply Monte Carlo simulations to the data and results indicate that the nonlinearites are a key factor in obtaining a less than one-for-one relationship in the Fisher relation. Fisher (1930) himself is unable to empirically prove his theorized ‘one-for-one relationship in his study of US nominal rates of interest and inflation, only managing to attain correlation coefficients of a little less than one, and subsequently only moderately satisfying his hypothesis. One explanation for this, relates to the theory of money illusion. Money illusion can be described as the inability of agents to differentiate between changes in real and nominal variables. In a practical context, changes to the inflationary expectations of agents would not be fully accounted for in their intertemporal decision making, and subsequently not passed on through to nominal interest rates. Another explanation is based on ideas presented by Mundell (1963) and Tobin (1965). M undell (1963) states that as the rate of inflation rises consumer purchasing power is likely to decrease, and subsequently lead to a fall in real interest rates. Tobin (1965) puts forward the idea that as inflation rates rise, there is a greater opportunity cost for agents who hold cash money, this leads to a fall in the amount of cash balances held and to a rise in the amount of holdings of real capital. The incorporation of these two school of thoughts is more widely known as the Mundell-Tobin effect, and offer an explanation as to why nominal rates of interest rise by a factor smaller than one, in response to changes in inflation. Studies by Mishkin (1992), Hawtrey (1997), and Monnet and Weber (2001) have cited that the form, strength and efficiency of a countrys monetary policy is reflected in the ability of changes to expected inflation to transmit through to nominal interest rates. With the effectiveness of monetary policy being a key motivation behind investigation of the Fi sher effect, a significant study by Soderland (2001) shows that when the combination of an inflation-targeting outline, and an active monetary policy exist, the strength of the Fisher effect is reduced. Darby (1975) and Feldstein (1976) take into account the impact of taxes on the relationship between nominal interest rates and expected rates of inflation. Darby (1975) asserts that a premium should be included to ensure constant real interest rates and emphasizes that nominal interest rates will vary in response to changes in expected inflation by a factor larger than one. Studies by Peek (1992) and Engsted (1996) find substantial support for the ‘Darby-Feldstein effect. In contrast to the ‘Mundell-Tobin and ‘Darby-Feldstein effects the concept of the ‘Inverted Fisher effect researched by Carmichael and Stebbing (1983) and Barth and Bradley (1988), also provides an alternative explanation as to why the fisher effect cannot be proven in its theoretical form . Carmichael and Stebbing (1983) extend a model where nominal interest rates extracted from financial assets are described as remaining constant, thereby indicating an inverse relationship between real interest rates and inflation. Utilising quarterly data on 3-month US and Australian Tresuary bills over 1953-1978, Carmichael and Stebbing (1983) are able to find support for the Inverted Fisher effect. However, later studies by Barth and Bradley (1988), Moazzami (1991) and Woodward (1992) fail to obtain satisfactory support for the inverted Fisher hypothesis. From our study of the literature it is clear to see that the Fisher hypothesis/effect is a key macroeconomic relationship, and its popularity is highlighted though the substantial investigations of the Fisher effect in developed countries, and to a lesser extent in developing countries. Results from US and UK studies of the Fisher effect are fairly mixed, but overall are in favour of the fisher hypothesis. With research by Mi shkin (1992), Crowder and Hoffman (1996), Granville and Mallick (2004) and Ghazali and Ramlee (2003) all showing support for the long-run fisher hypothesis. Similarly, research utilising data from Australia and a mixture of European counties such as the G7, have on the whole been able to verify the existence of the Fisher effect. This is confirmed by studies by Berument and Jelassi (2002) and Berumant Ceylan Olgan (2007) who examine a comprehensive mixture of both developed and developing countries. Surprisingly, empirical literature analysing Latin American countries with their characteristically high, and volatile levels of inflation finds that the majority of the studies reveal fairly undisputed results in favour of the fisher effect. Investigations of many East Asian countries have yielded mixed results, with many researchers looking to analyse the impact of the Asian Financial crisis on the Fisher effect such as Nusair (2008). Research of the Fisher hypothesis/effect has been relatively scarce in the context of the Indian economy. However, studies by Paul (1984), Thenmozhi and Radha (2005), and more recently by Sathye, Canberra, Sharma and Liu (2008) are all able to justify the existence of the Fisher relation in India. In contrast, the use of Johansen cointegration techniques by Payne and Ewing (1997) and the application of an autoregressive distributed lag methodology by Bhanumurthy and Agarwal (2002) in their studies reject the existence of the Fisher effect in India. The popularity of two key methodologies employed in verifying a long-run relationship between nominal rates of interest and inflation, include the Engle Granger cointegration concept and the Johansen (1988) cointegration test. Many explanations as to why the Fisher effect cannot be found in its explicit theoretical form have been developed. A key and significant finding, suggests that major differentials in methods used to test the hypothesis, and the variation in proxies used for nomina l interest and inflation variables have been the cause of such a wide variety of results. Other explanations include the ‘Mundell-Tobin and ‘Darby-Feldstein effect, in addition, the concept of the ‘Inverted Fisher effect and the effectiveness of a countrys monetary policy. CHAPTER 4 – METHODOLOGY From the analysis of the literature surrounding the Fisher Hypothesis, this study aims to study the relationship between short-term nominal interest rates and inflation in India. Fisher (1930) claimed that a one-for-one positive relationship existed between expected rates of inflation and nominal interest rates. This dissertation chooses to follow similar econometric methodologies used by Mishkin (1992), Mishkin and Simon (1995) and Sathye, Canberra, Sharma and Liu (2008) to validate the Fisher effect in the context of the Indian economy. 4.1 THEORETICAL EMPIRICAL MODEL The relationship between nominal interest rates, ‘ex-ante real interest rates and expected rates of inflation are combined in Fishers (1930) equation: = + (1.4) With: ( ) = the nominal interest rate ( ) = the ‘ex-ante real interest rate ( ) = expected rates of inflation The ‘ex-ante real interest rate can be described as the unobservable, expected rate of real interest, with ‘ex-post real rates of interests indicating the actual rate. As mentioned previously both expected rates of inflation and ‘ex-ante real rates of interest must be proxied. The theory of rational expectations signified by Fama (1975) asserts that prospective variations in future prices are created by taking into account all available information the time. Hence, realised rates of inflation can be decomposed into the expected inflation rate ( ) together with a forecast error ( ). = + (1.5) This error term can be described as being completely random and can be translated as E ( ) = 0, and for this reason is stationary. Fisher (1930) postulates that the real rates of interest are constant; subsequently the ‘ex-ante real rate of interest ( ) can be created from a constant value (a) and a stationary error ( ): = a + (1.6) Substituting (1.6) into (1.4) and rearranging: = a + This equation is representative of the relationship hypothesised by Fisher (1930). Many past studies of the Fisher effect have incorporated expected inflation rates as a dependent variable, evaluating the equation below: = + + (1.7) Citing the methodology applied in Mishkin (1992) we rewrite the above equation as: = + + (1.9) where = + . This equation can be further modified to represent a regression framework: = + (1.10) Where, = the inflation rate at time t = the nominal interest rate at time t = the sum of the two stationary components at time t Considerable correlation between nominal interest rates and actual rates of inflation is one of the key conditi ons that validate the Fisher effect, with a one-for-one relationship describing the hypothesis in its strictest form. The coefficient in the regression equation represents the extent to which the Fisher effect holds. Subsequently, a coefficient of one would represent a unit proportional relationship between nominal interest rates and inflation, and a value of zero would represent the non-existence of the Fisher effect. Considering the nonstarionary charistecs of macroeconomic time series variables However, taking into account the nonstationary nature of macroeconomic time series data such as inflation and nominal rates of interest as proposed by Nelson and Plosser (1982), suggests that the estimation of equation (1.10) would be subject to the problem of spurious regression described by Granger and Newbold (1974). This is attributed to the fact that the t-ratios (on which the evaluation of the significance of the estimated coefficient is based on) could be misleading. Consequently, this could lead to possible invalid conclusions of the statistical relationship between the variables, and could therefore lead to false acceptances of the presence of the Fisher effect within the UK.