The Fisher effect posits a long-run one-to-one relationship between the

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The Fisher effect states that there is a one-to-one relationship between the nominal interest rate and the inflation rate in the long run. Specifically, it suggests that an increase in the inflation rate would lead to a corresponding increase in the nominal interest rate. This is because lenders would demand higher nominal interest rates to compensate for expected inflation, which would erode the value of their future cash flows. Conversely, a decrease in the inflation rate would lead to a corresponding decrease in the nominal interest rate. Note that this relationship may not hold in the short run due to other factors such as changes in monetary policy or investor sentiment.

The Fisher Effect Posits a Long-Run One-To-One Relationship Between the