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DEVOLUTION OF THE FISHER EQUATION: Rational Appreciation to Money Illusion
en
Fisher equation
Fisher hypothesis
Fisher effect
money illusion
nominal interest rate
purchasing power of money
value of money
RHODES James R.
政策研究大学院大学 / National Graduate Institute for Policy Studies
In Appreciation and Interest Irving Fisher (1896) derived an equation connecting interest rates in any two standards of value. The original Fisher equation (OFE, 1896) was expressed in terms of the expected appreciation of money (the real return on money) whereas the conventional Fisher equation (CFE, 1930) uses expected inflation. Since the OFE is based on the value of money (l/P) it is not subject to standard criticisms of irrationality leveled against the CFE. Fisher's puzzling substitution of lagged inflation for money appreciation in 1930 is resolved by taking into account his theory of "money illusion."
JEL Classification Codes: B00, E40, B13, B22, B31
Revised version: Discussion Paper : 07-05
GRIPS Research Report Series
I-2006-0002
2006-06
GRIPS Policy Information Center
©2006 by James R. Rhodes. All rights reserved.
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