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
Date Written: December 2006
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: Suggested Citation