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Fisher Hypothesis
In economics, the Fisher effect is the tendency for nominal interest rates to change to follow the inflation rate. It is named after the economist Irving Fisher, who first observed and explained this relationship. Fisher proposed that the real interest rate is independent of monetary measures (known as the Fisher hypothesis), therefore, the nominal interest rate will adjust to accommodate any changes in expected inflation. Derivation The ''nominal'' interest rate is the accounting interest rate – the percentage by which the amount of dollars (or other currency) owed by a borrower to a lender grows over time, while the ''real'' interest rate is the percentage by which the real purchasing power of the loan grows over time. In other words, the real interest rate is the nominal interest rate adjusted for the effect of inflation on the purchasing power of the outstanding loan. The relation between nominal and real interest rates, and inflation, is approximately given by the Fish ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
International Fisher Effect
The international Fisher effect (sometimes referred to as Fisher's open hypothesis) is a hypothesis in international finance that suggests differences in nominal interest rates reflect expected changes in the spot exchange rate between countries. The hypothesis specifically states that a spot exchange rate is expected to change equally in the opposite direction of the interest rate differential; thus, the currency of the country with the higher nominal interest rate is expected to depreciate against the currency of the country with the lower nominal interest rate, as higher nominal interest rates reflect an expectation of inflation. Derivation of the International Fisher effect The International Fisher effect is an extension of the Fisher effect hypothesized by American economist Irving Fisher. The Fisher effect states that a change in a country's expected inflation rate will result in a proportionate change in the country's interest rate :(1+i) = (1+r) \times (1+E pi where :i is t ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Consumer Durables
In economics, a durable good or a hard good or consumer durable is a good that does not quickly wear out or, more specifically, one that yields utility over time rather than being completely consumed in one use. Items like bricks could be considered perfectly durable goods because they should theoretically never wear out. Highly durable goods such as refrigerators or cars usually continue to be useful for several years of use, so durable goods are typically characterized by long periods between successive purchases. Nondurable goods or soft goods (consumables) are the opposite of durable goods. They may be defined either as goods that are immediately consumed in one use or ones that have a lifespan of less than three years. Examples of nondurable goods include fast-moving consumer goods such as food, cosmetics, cleaning products, medication, clothing, packaging and fuel. While durable goods can usually be rented as well as bought, nondurable goods generally are not rented. Durabl ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Friedman's K-percent Rule
In macroeconomics, Friedman's k-percent rule (named for Milton Friedman) is the monetarist proposal that the money supply should be increased by the central bank by a constant percentage rate every year, irrespective of business cycles. Definition According to Milton Friedman "The stock of money hould beincreased at a fixed rate year-in and year-out without any variation in the rate of increase to meet cyclical needs." (Friedman 1960) Giving governments any flexibility in setting money growth will lead to inflation according to Friedman. The main policy to be avoided is countercyclical monetary policy, the standard Keynesian policy recommendation at the time. For this reason, the central bank should be forced to expand the money supply at a constant rate, equivalent to the rate of growth of real GDP. This is not to be confused with the Friedman rule, which is a policy of zero nominal interest rates. See also * Taylor rule * Inflation targeting * Inverted yield curve * ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
McCallum Rule
In monetary policy, the McCallum rule specifies a target for the monetary base (M0) which could be used by a central bank. The McCallum rule was proposed by Bennett T. McCallum at Carnegie Mellon University's Tepper School of Business. It is an alternative to the well known Taylor rule and according to its proponents, it performs better during crisis periods. Rule The rule gives a target for the monetary base in the next quarter (about 13 weeks). The target is: : m_ = m_t - \overline _ + 1.5 \left( + _D + \overline \right) - 0.5 _ \,, where :m_t\, is the natural logarithm of M0 at time ''t'' (in quarters); :\overline _\, is the average quarterly increase of the velocity of M0 over a four-year period from ''t''-16 to ''t''; :_D\, is desired rate of inflation, i.e. the desired quarterly increase in the natural logarithm of the price level; :\overline \, is the long-run average quarterly increase of the natural logarithm of the real GDP; and :_\, is the quarterly increase of the nat ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Taylor Rule
The Taylor rule is a monetary policy targeting rule. The rule was proposed in 1992 by American economist John B. Taylor for central banks to use to stabilize economic activity by appropriately setting short-term interest rates. The rule considers the federal funds rate, the price level and changes in real income.John B. Taylor, Discretion versus policy rules in practice (1993), Stanford University, y, Stanford, CA 94905 The Taylor rule computes the optimal federal funds rate based on the gap between the desired (targeted) inflation rate and the actual inflation rate; and the output gap between the actual and natural output level. According to Taylor, monetary policy is stabilizing when the nominal interest rate is higher/lower than the increase/decrease in inflation. Thus the Taylor rule prescribes a relatively high interest rate when actual inflation is higher than the inflation target. In the United States, the Federal Open Market Committee controls monetary policy. The committee ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Monetary Policy Reaction Function
A monetary policy reaction function describes how a central bank systematically adjusts its policy instruments in response to changes in economic conditions. This function provides a framework for understanding how central banks make policy decisions based on observable economic indicators. Examples The most influential reaction function is the Taylor rule, developed by economist John Taylor in 1993. The rule provides a systematic formula for setting the nominal interest rate based on four key variables: The deviation of current inflation rate from the central bank's target; The current inflation rate itself; The equilibrium real interest rate; and the output gap, measured as the percentage difference between actual GDP and potential output. An alternative formulation of the monetary policy reaction function was proposed by Ben Bernanke and Robert H. Frank.Bernanke, Ben, and Frank, Robert. ''Principles of Economics'', 3rd edition. Their simplified version describes a positive relat ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Monetary Policy
Monetary policy is the policy adopted by the monetary authority of a nation to affect monetary and other financial conditions to accomplish broader objectives like high employment and price stability (normally interpreted as a low and stable rate of inflation). Further purposes of a monetary policy may be to contribute to economic stability or to maintain predictable exchange rates with other currencies. Today most central banks in developed countries conduct their monetary policy within an inflation targeting framework, whereas the monetary policies of most developing countries' central banks target some kind of a fixed exchange rate system. A third monetary policy strategy, targeting the money supply, was widely followed during the 1980s, but has diminished in popularity since then, though it is still the official strategy in a number of emerging economies. The tools of monetary policy vary from central bank to central bank, depending on the country's stage of development, inst ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Exchange Rate
In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of the euro. The exchange rate is also regarded as the value of one country's currency in relation to another currency. For example, an Interbank lending market, interbank exchange rate of 141 Japanese yen to the United States dollar means that ¥141 will be exchanged for or that will be exchanged for ¥141. In this case it is said that the price of a dollar in relation to yen is ¥141, or equivalently that the price of a yen in relation to dollars is $1/141. Each country determines the exchange rate regime that will apply to its currency. For example, a currency may be floating exchange rate, floating, fixed exchange rate, pegged (fixed), or a hybrid. Governments can impose certain limits and controls on exchange rates. Countries can als ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
LM Curve
The abbreviation LM or lm may refer to: Places * County Leitrim, Ireland (vehicle plate code LM) * Le Mans, a place in France * Limburg-Weilburg, Germany (vehicle plate code LM) * Liptovský Mikuláš, Slovakia (vehicle plate code LM) * Lourenço Marques, Pearl of the Indian Ocean, Mozambique * Lower Mainland, a region in British Columbia, Canada * Lower Manhattan, Southern part of Manhattan, New York Arts, entertainment, and media * Little Mix, a British four-piece girl group * ''LM'' (magazine), a defunct British computer game magazine * ''Living Marxism'' magazine, published under the name ''LM'' between 1997 and 2000 * Long metre or Long Measure, a hymn-metre with four lines of 8 syllables Brands and enterprises * L&M, a brand of cigarettes * Ledgewood Mall, a shopping mall in New Jersey * Legg Mason, a U.S. investment management firm; NYSE ticker symbol * Lockheed Martin, a U.S. defense contractor In transportation * ALM Antillean Airlines, a Netherlands Antillean airlin ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Fixed Investment
Fixed investment in economics is the purchase of newly produced physical asset, or, fixed capital. It is measured as a flow variable – that is, as an amount per unit of time. Thus, fixed investment is the sum of physical assets such as machinery, land, buildings, installations, vehicles, or technology. Normally, a company balance sheet will state both the amount of expenditure on fixed assets during the quarter or year, and the total value of the stock of fixed assets owned. Fixed investment contrasts with investments in labour, ongoing operating expenses, materials or financial assets. Financial assets may also be held for a fixed term (for example, bonds) but they are not usually called "fixed investment" because they do not involve the purchase of physical fixed assets. The more usual term for such financial investments is "fixed-term investments". Bank deposits committed for a fixed term such as one or two years in a savings account are similarly called "fixed-term deposi ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Real Versus Nominal Value (economics)
In economics, nominal value refers to value measured in terms of absolute money amounts, whereas real value is considered and measured against the actual goods or services for which it can be exchanged at a given time. Real value takes into account inflation and the value of an asset in relation to its purchasing power. In macroeconomics, the real gross domestic product compensates for inflation so economists can exclude inflation from growth figures, and see how much an economy actually grows. Nominal GDP would include inflation, and thus be higher. Commodity bundles, price indices and inflation A commodity bundle is a sample of goods, which is used to represent the sum total of goods across the economy to which the goods belong, for the purpose of comparison across different times (or locations). At a single point of time, a commodity bundle consists of a list of goods, and each good in the list has a market price and a quantity. The market value of the good is the marke ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
