What is the Fisher effect?

The Fisher effect It is the theory that is responsible for analyzing and describing the relationship between the interest rates that are created in two countries and the change that takes place between their currencies. Therefore, when talking about the Fisher effect, one must necessarily talk about Forex, currencies, currency exchange and interest. It is a mandatory concept for those who work in this type of business.

The theory turns out to be controversial because it hopes to match all currencies in a single capital market. On the internet there are many critics who point out how complicated the matter is by creating paradoxes. According to the theory, capital markets must be integrated so that capital flows freely between different countries. That is, if there is leveling between currencies, the chances that a country with little capital will receive a large amount of investment and its currency can be valued. In principle, we could say that what this theory seeks is the money neutrality.

With this concept it is also important to take into account another one, such as inflation rate, nominal interest and interest in the market. If you have, for example, an account in a bank, the money deposited there produces even more, but this has to be limited to the levels of inflation.

In developed countries, capitals are integrated, but this situation is contrary to those less developed or developing countries. This theory is not fulfilled there due to the restrictions on the flow of their currencies and the other regulations imposed by the market of developed countries.

This term is generally used in macroeconomics and by professionals in this field. Its conceptualization is too broad but summarized in that it seeks the leveling and integration of currencies. The Fisher effect therefore it is a theory of concepts that in practice has not been carried or demonstrated. It is only possible, in a certain case, to verify that it is possible in the markets of developed countries, but it only stays there. Because it is a theory, it is open to a counter argument and discussion about its effectiveness. Students analyze how effective it would be if the Fisher effect were held in all world markets, regardless of whether those that are larger restrict the smaller ones.