Interest Rates and Inflation
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.
