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Fisher Effect

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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.

Fisher Effect
A theory stating that real interest rates are independent of monetary considerations. According to the Fisher effect, a currency's real interest rate is equal to its nominal interest rate less the inflation rate. Thus, if the inflation rate rises, the real interest rate eventually rises as well; likewise, if inflation falls, the real interest rate will fall. See also: International Fisher Effect.

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


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For example, when talking about economic conditions, analysts often look at conditions like international parity conditions, the purchasing power parity, the interest rates of central banks and even aspects like the International Fisher effect.
Siegler, 2003, "Inflationary Expectations and the Fisher Effect Prior to World War I," The Journal of Money, Credit and Banking Vol.
 
 
 
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