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hasizes 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 Mishkin (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 variatio