To forecast the real interest rate for an upcoming period using the Fisher effect, the expected inflation rate over that period is subtracted from the nominal interest rate quoted for that period.

Question

Quizplus · Accepted Answer

The Fisher effect describes the relationship between nominal interest rates, real interest rates, and inflation. According to the Fisher effect, the real interest rate can be calculated by subtracting the expected inflation rate from the nominal interest rate.

To Forecast the Real Interest Rate for an Upcoming Period