Advanced Macro & Growth · intro
What moves on the Fisher Equation diagram
NominalnominalMeasured in current dollars, unadjusted for inflation. rates carry expected inflationinflationA sustained rise in the overall price level, eroding money's purchasing power. on top of the realrealAdjusted for inflation, measured in actual purchasing power. rate, the one-for-one Fisher effect.
Lenders care about realrealAdjusted for inflation, measured in actual purchasing power. purchasing power.
Expected inflationinflationA sustained rise in the overall price level, eroding money's purchasing power. jumps 2.5 points, no lender accepts the old rate.
NominalnominalMeasured in current dollars, unadjusted for inflation. rates rise one-for-one along the Fisher line. High rates in inflationary economies are compensation, not tightness.
Examiners ask this as: expected inflation nominal rates, fisher effect bonds.
Other scenarios on Fisher Equation