In the United States, the interest rate is 6%. We need both uncovered interest parity and purchasing power parity for real interest parity to hold.
The Fisher Effect, an economic theory developed by Irving Fisher, explains how inflation and both real and nominal interest rates interact. According to the Fisher Effect, the real interest rate is the nominal interest rate less the expected inflation rate. The Fisher Effect is a key factor in macroeconomics. It explains the causal connection between the nominal interest rate and inflation. It contends that lower inflation results from an increase in nominal rates. According to the IFE, higher nominal interest rates are linked to greater rates of inflation, which lowers the value of the nation's currency in relation to other currencies.
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