Navigation

Fisher Effect

The Fisher effect describes the relationship between interest rates and inflation. According to Irving Fisher, the brains behind this amazing theory, the real interest rate is equal to the nominal interest rate minus the expected inflation.

With the real interest rate held constant, an rise in expected inflation should be accompanied by an increase in the nominal interest rate. In other words, if a central bank expects a considerable rise in price levels, they could hike rates accordingly.

Back to Forexpedia Main Page

"Only those who dare to fail greatly can ever achieve greatly."
Robert F. Kennedy
Clicky Web Analytics