HAS THE DARBY‐FELDSTEIN EFFECT BEEN CONFIRMED?: REPLY

William Gissy (1987) is absolutely correct when he asserts that the existence of a complete inverted Fisher Effect renders our test for the Darby Effect a simple measure of tax arbitrage. His mathematical development of this is well done and completely valid. Our statement on page 59 of our article (1986) that “it is irrelevant whether movements in expected inflation are reflected primarily in nominal rates or real rates” should have pointed out that, in the case of an inverted Fisher Effect, the statistical analysis does not measure the Darby‐Feldstein Effect. We do, however, have a few differences with the above point of view.