The relationship among the nominal rates of interest, the real rates of interest and the inflation rates: an empirical study of the fisher effect on Malaysian T Bill market

Abstract

The Fisherian hypothesis asserts that, if the expected real rate of interest is constant and therefore independent of expected inflation, each percentage point risc in the expected inflation results in a percentage point rise in the nominal rate of interest. Many studies employing different sets of data and methodologies were performed in search of the true relationship and in identifying the major determinant factors for the three variables, namely, the nominal rate, the real rate and the inflation rate. Knowing the exact interactions of these variables will assist not only the monetary authority but also the general investors (lenders and borrowers) in various economics decisions such as portfolio adjustment, setting charges on loans, balancing money and real investment.