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Fisher's Theory of Interest Rates and the Notion of 'Real': A Critique

Levy Economics Institute Working Paper No. 483

35 Pages Posted: 5 Dec 2006  

Eric Tymoigne

Lewis & Clark College

Date Written: December 2006

Abstract

By providing five different criticisms of the notion of real rate, the paper argues that this concept, as Fisher defined it or as a definition, is not relevant to economic analysis. Following Keynes and other post-Keynesians, the article shows that the notion of real rate is microeconomically and macroeconomically unfounded. Adjusting interest rates for inflation does not protect the purchasing power of wealth, and it is impossible to do so at the macroeconomic level. In addition, an empirical interpretation of the break in the correlation between interest rates and inflation since 1953 is provided.

Keywords: Real Interest Rate, Fisher

JEL Classification: E43

Suggested Citation

Tymoigne, Eric, Fisher's Theory of Interest Rates and the Notion of 'Real': A Critique (December 2006). Levy Economics Institute Working Paper No. 483. Available at SSRN: https://ssrn.com/abstract=948755 or http://dx.doi.org/10.2139/ssrn.948755

Eric Tymoigne (Contact Author)

Lewis & Clark College ( email )

0615 SW Palatine Hill Road
Portland, OR 97204
United States

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