Nonparametric cointegration analysis of the nominal interest rate and expected inflation rate

This paper investigates the relationship between the nominal interest rate and expected inflation rate in Japan by a nonparametric cointegration approach. While Johansenʹs method does not obtain the results of cointegration, a nonparametric approach which assumes a general data process provides clear evidence of the cointegration. The results indicate nonlinearity in the real interest rate adjustment.