If purchasing power parity holds, then the Fisher effect must also hold.

Question

Quizplus · Accepted Answer

Purchasing Power Parity (PPP) and the Fisher Effect are two separate economic theories. PPP relates to the exchange rates between currencies adjusting to equalize the purchasing power of different currencies. The Fisher Effect describes the relationship between nominal interest rates, real interest rates, and inflation. One can exist without the other necessarily holding true.

If Purchasing Power Parity Holds, Then the Fisher Effect Must