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DEVOLUTION OF THE FISHER EQUATION: Rational Appreciation to Money Illusion RHODES, James R. Fisher equation Fisher hypothesis Fisher effect money illusion nominal interest rate purchasing power of money value of money https://www.grips.ac.jp/list/jp/facultyinfo/rhodes_james/ 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 ubiquitous conventional Fisher equation (CFE, 1930) uses expected inflation. Since the OFE is based on the value of money (1/P) it is not subject to standard criticisms of irrationality leveled against the CFE. Fisher’s puzzling substitution of lagged inflation for expected money appreciation in 1930 is resolved by taking into account his theory of “money illusion.” JEL Classification Codes: E40, B00, B31 Report No. 06-02の改訂版 経済学 / Economics GRIPS Policy Research Center 2007-09-05 eng technical report AM https://doi.org/10.24545/00000975 https://grips.repo.nii.ac.jp/records/975 10.24545/00000975 https://ideas.repec.org/p/ngi/dpaper/07-05.html https://ideas.repec.org/p/ngi/dpaper/07-05.html GRIPS Discussion Papers DP07-05 https://grips.repo.nii.ac.jp/record/975/files/DP07-05.pdf application/pdf 189.1 kB