• The Fisher Effect is an economic theory created by economist Irving Fisher that describes the relationship between inflation and real and nominal interest rates.

  • The Fisher effect states that the real interest rate is equal to the nominal interest rate minus the expected rate of inflation.
  • The Fisher effect has been extended to analyze the money supply and international currency trading.
  • When the real interest rate is positive, it means that the lender or investor is able to beat inflation.
  • When the real interest rate is negative, this means that the rate charged on a loan or paid into a savings account does not exceed inflation.