Fisher Effect

 

Domestic Fisher Effect

•         When expected inflation rises, interest rates will rise.

1 + i= (1 + ρ) x E(1 + π)

•         Real interest rate adjusted for the expected erosion of the purchasing power due to inflation. On the other hand, nominal interest rate is the market interest rate unadjusted to reflect the erosion of the purchasing power due to inflation

i = ir +  πe

International Fisher Effect

•         The difference in the nominal interest rates between two countries determines the movement of the nominal exchange rate between their currencies, with the value of the currency of the country of the lower nominal interest rate increasing

•         According to the Fisher hypothesis says that the ir in an economy is independent of monetary variables. If we add to this the assumption that ir are equated across countries, then the country with the lower in would also have a lower rate of inflation and hence the real value of its currency would be risen over time

Bạn đang đọc truyện trên: AzTruyen.Top

Tags: