The Fisher Equation Controversy: A Reconciliation of Contradictory Results

Raghbendra Jha and A.P. Sahu

Working Paper from Economics Department, Queen's University

Abstract: This paper re-examines the alternative theoretical predictions in the Fischer equation literature. Theoretical predictions about the response of nominal interest rates to inflation expectations ranges from a partial to complete and more-than-complete adjustment of the nominal interest rate to anticipated inflation. Using a neoclassical monetary growth model, this study demonstrates how Mundell-Tobin, Fischer, Darby-Feldstein, Neilsen-Gandolfi, and Summers effects hold as special cases under specific assumptions about the parameter values of the model; thus suggesting that the magnitude of the response of the nominal interest rate to expected inflation depends on the empirical values of the critical parameters involved.

Keywords: economic theory; interest rate; inflation (search for similar items in EconPapers)
Pages: 14 pages
Date: 1989
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:747

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