What Is the Fisher Effect?

Financen31406 Jul, 2021Other

The economist Irving Fisher constructed a theory which is now referred to as the Fisher Effect, which depicts the relationship which is following between inflation and both the interest rates which are real and nominal interest rates. Here, the fisher states that the real rate of interest is equal to or derived as by subtracting the nominal interest rate with the expected inflation rate. Therefore, because of this relation, a change in the real rate of interest is due to the change in nominal rates.