In economics, the Fisher hypothesis (sometimes called the Fisher effect) is the proposition by Irving Fisher that the real interest rate is independent of monetary measures, specifically the nominal interest rate and the expected inflation rate. The term “nominal interest rate” refers to the actual interest rate giving the amount by which a number of dollars or other unit of currency owed by a borrower to a lender grows over time; the term “real interest rate” refers to the amount by which the purchasing power of those dollars grows over time—that is, the real interest rate is the nominal interest rate adjusted for the effect of inflation on the purchasing power of the loan proceeds.
The international Fisher effect predicts an international exchange rate drift entirely based on the respective national nominal interest rates. A related concept is Fisher parity.
- ^Shiratsuka, Shigenori; Okina, Kunio (1 February 2004). “Policy Duration Effect Under Zero Interest Rates: An Application of Wavelet Analysis” – via papers.ssrn.com.
- ^“International Fisher Effect (IFE)”. Retrieved 2007-11-03.
- ^Kwong, Mary; Bigman, David; Taya, Teizo (2002). Floating Exchange Rates and the State of World Trade and Payments. Beard Books. p. 144. ISBN 1-58798-129
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.