The fisher effect is defined as the relationship between which variables?

Inflation, real interest rate, nominal Interest rate

Explanations:

Irving Fisher propounded the Fisher effect theory. The Fisher effect is the relationship between inflation, real Interest rate and nominal Interest rate.

Fisher Effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate.

That is,

Real Interest rate=Nominal Interest rate - expected inflation rate

As inflation increases; Interest rate decreases except circumstances where nominal Interest rate and inflation increase at the same rate.

Therefore, real interest rates fall as inflation increases, unless nominal rates increase at the same rate as inflation.

Inflation is the persistent increase in the general price level in an economy over a period of time.

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