Fisher effect

Fisher Effect

A theory describing the long-run relationship between inflation and interest rates.

Notes:

This equation tells us that, all things being equal, a rise in a country's expected inflation rate will eventually cause an equal rise in the interest rate (and vice versa).

See also: CPI, Deflation, Disinflation, Hyperinflation, Inflation, PPI, Reflation, RPI, Stagflation

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Fisher effect

A theory that nominal interest rates in two or more countries should be equal to the required real rate of return to investors plus compensation for the expected amount of inflation in each country.

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Fisher effect

The direct relationship between inflation and interest rates. Increasing inflationary expectations result in increasing interest rates.