What is the 'Fisher Effect'
The Fisher effect is an economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and nominal interest rates. The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate. Therefore, real interest rates fall as inflation increases, unless nominal rates increase at the same rate as inflation.
BREAKING DOWN 'Fisher Effect'
The Fisher effect can be seen each time you go to the bank; the interest rate an investor has on a savings account is really the nominal interest rate. For example, if the nominal interest rate on a savings account is 4% and the expected rate of inflation is 3%, then money in the savings account is really growing at 1%. The smaller the real interest rate the longer it will take for savings deposits to grow substantially when observed from a purchasing power perspective.

Nominal Interest Rate
The interest rate before taking inflation into account. The equation ... 
Real Interest Rate
An interest rate that has been adjusted to remove the effects ... 
Real Rate Of Return
The annual percentage return realized on an investment, which ... 
Nominal Value
The stated value of an issued security. Nominal value in economics ... 
Nominal Rate Of Return
The amount of money generated by an investment before expenses ... 
Real Value
Nominal value adjusted for inflation. Real value is obtained ...

Economics
The International Fisher Effect: An Introduction
The Fisher models have the ability to illustrate the expected relationship between interest rates, inflation and exchange rates. 
Economics
Understanding the Fisher Effect
The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate. 
Economics
Understanding Interest Rates: Nominal, Real And Effective
Interest rates can be broken down into several subcategories that incorporate various factors such as inflation. Smart investors know to look beyond the nominal or coupon rate of a bond or loan ... 
Investing News
Ken Fisher's Success Story: Net Worth, Education & Top Quotes
Learn about the rise of Kenneth Fisher, the wouldbe forester who became the founder of one of the largest money management firms in the country. 
Investing Basics
What Does Nominal Mean?
Nominal refers to an unadjusted value or change in value. 
Investing Basics
What is a Nominal Value?
The nominal value of a security, such as a stock or bond, remains fixed for the duration of its life. 
Economics
Interest Rates: Nominal and Real
An interest rate is the cost of borrowing money, expressed as a percentage of the loan amount. Interest rates are the primary yardstick for measuring how much return lenders will get. However, ... 
Investing News
How Interest Rates Can Go Negative
Central banks from Europe to Japan have implemented a negative interest rate policy (NIRP) in order to stimulate economic growth. 
Term
What's a Real Rate of Return?
A real rate of return is an annual percentage investment return thatâ€™s adjusted for inflation, taxes or other factors. 
Investing News
Fisher Investments: Investment Manager Highlight
Take a close look at Fisher Investments, a giant among money management firms.

What does the Fisher Effect say about nominal interest rates?
Read about what economists call the Fisher effect, which states that real interest rates are equal to nominal rates minus ... Read Answer >> 
How is the Macaulay duration related to fixed income markets?
Determine how monetary policy influences the Fisher effect. The Fisher effect is used to determine real interest rates which ... Read Answer >> 
How does the Fisher effect illustrate returns on bonds?
Learn how the Fisher effect shows the impact of expected future increases in inflation on the prices of bonds and their interest ... Read Answer >> 
What is the difference between real and nominal interest rates?
Learn what nominal interest rates and real interest rates are, how real interest rate takes into account the inflation rate, ... Read Answer >> 
How do nominal interest rates in finance differ from the nominal rate of interest ...
Read about the subtle difference between a financial instrument's nominal interest rate of return and the general nominal ... Read Answer >> 
How were nominal interest rates in the economy set before the Federal Reserve?
Learn more about how nominal interest rates are determined, how the Federal Reserve targets them, and how they acted prior ... Read Answer >>