Fisher, Thornton and the Analysis of the Inflation Premium

16 Pages Posted: 24 Aug 2012

See all articles by William Beranek

William Beranek

affiliation not provided to SSRN

Thomas M. Humphrey

Federal Reserve Banks - Federal Reserve Bank of Richmond

Richard Timberlake

University of Georgia - Department of Economics & Finance

Date Written: September 1, 1984

Abstract

Virtually all references to the Fisher Effect assume that its appearance in nominal interest rates is a simultaneous result of borrower and lender effects. However, Irving Fisher, and Henry Thornton before him emphasized the activist role on the borrower (demand) side of the loan market. Their reasoning is extended here. Borrowers are seen increasing their demands for loans not because they necessarily anticipate inflation, but because the results of inflationary spending first appear on their income statements as higher profits. Ultimately lenders' loan supply schedules shift to the left as they, too, become aware of the decline in real rates. The conclusions reached for the loan market are seen as generalized to all contractual costs in labor and commodity markets.

Suggested Citation

Beranek, William and Humphrey, Thomas M. and Timberlake, Richard, Fisher, Thornton and the Analysis of the Inflation Premium (September 1, 1984). FRB Richmond Working Paper No. 84-5, Available at SSRN: https://ssrn.com/abstract=2120212 or http://dx.doi.org/10.2139/ssrn.2120212

William Beranek (Contact Author)

affiliation not provided to SSRN

Thomas M. Humphrey

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Richard Timberlake

University of Georgia - Department of Economics & Finance

Athens, GA 30602-6254
United States

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