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 ... 
Real Value
Nominal value adjusted for inflation. Real value is obtained ... 
Nominal Yield
The coupon rate on a bond. The nominal yield is the interest ...

Markets
The International Fisher Effect: An Introduction
The Fisher models have the ability to illustrate the expected relationship between interest rates, inflation and exchange rates. 
Markets
Understanding the Fisher Effect
The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate. 
Markets
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 ... 
Financial Advisor
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
What Does Nominal Mean?
Nominal refers to an unadjusted value or change in value. 
Investing
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. 
Markets
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, ... 
ETFs & Mutual Funds
Fisher Investments: Investment Manager Highlight
Take a close look at Fisher Investments, a giant among money management firms. 
Markets
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. 
Markets
The Top 5 Positions in Ken Fisher's Portfolio (AMZN, LQD)
Pay attention to whether Amazon.com, Inc. remains the top holding of Fisher Asset Management despite a 27% share price drop during the first five weeks of 2016.

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 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 >> 
What is the rationale behind the effective interest rate?
Read about the reasons why market actors identify the effective interest rate as it pertains to investing, lending and accounting. Read Answer >>