Interest Rates and Inflation
Last Updated: 05/04/81
The relation between interest rates and inflation has attracted much attention in recent years. Serious empirical research on this subject has resumed after a lapse of nearly four decades, from the early 1930s to the late 1960s. The point of departure of this work has been Irving Fisher's classic study, The Theory of Interest, published in 1930. Fisher found interest rates during the period 1890-1927 to respond slowly and incompletely to variations in inflation. The most common interpretation of these results is that inflationary expectations, which influence current interest rates, respond slowly to observations of past inflation.