Real Interest Parity and the Fisher Hypothesis

Imad A. Moosa and Razzaque H. Bhatti
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Imad A. Moosa: La Trobe University
Razzaque H. Bhatti: University of Azad Jammu and Kashmir

Chapter 5 in International Parity Conditions, 1997, pp 94-106 from Palgrave Macmillan

Abstract: Abstract The real interest parity (RIP) hypothesis postulates that if the world markets for goods, capital and foreign exchange are integrated, real interest rates on perfectly comparable financial assets tend to be equalised across countries over time. This hypothesis predicts that the nominal interest rate differential adjusts fully to the inflation differential, maintaining the constancy and equality of real interest rates across countries. In essence, the hypothesis relies on the stability of the Fisher closed condition.

Keywords: Interest Rate; Inflation Rate; Real Exchange Rate; Real Interest Rate; Rational Expectation (search for similar items in EconPapers)
Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-25523-8_5

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DOI: 10.1007/978-1-349-25523-8_5

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