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Real Interest Parity and the Fisher Hypothesis

In: International Parity Conditions

Author

Listed:
  • Imad A. Moosa

    (La Trobe University)

  • Razzaque H. Bhatti

    (University of Azad Jammu and Kashmir)

Abstract

The real interest parity (RIP) hypothesis postulates that if the world markets for goods, capital and foreign exchange are integrated, real interest rates on perfectly comparable financial assets tend to be equalised across countries over time. This hypothesis predicts that the nominal interest rate differential adjusts fully to the inflation differential, maintaining the constancy and equality of real interest rates across countries. In essence, the hypothesis relies on the stability of the Fisher closed condition.

Suggested Citation

  • Imad A. Moosa & Razzaque H. Bhatti, 1997. "Real Interest Parity and the Fisher Hypothesis," Palgrave Macmillan Books, in: International Parity Conditions, chapter 5, pages 94-106, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-25523-8_5
    DOI: 10.1007/978-1-349-25523-8_5
    as

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