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Case 1: Home inflation and interest rate are higher compared to the foreign country

Implications of the International Fisher Effect (IFE):

Higher inflation and interest rates in the home country will lead to higher nominal interest rates. The IFE suggests that the country with higher interest rates will see its currency depreciate in the future. Imports: With a depreciating domestic currency, imports become more expensive, leading to a decrease in demand for imported goods.

Exports: Exports become cheaper for foreign buyers, leading to an increase in demand for home country exports.

Currency Effect: The domestic currency will depreciate relative to the foreign currency due to higher inflation and interest rates.

Example: If the home country’s interest rates rise to 5% while the foreign country’s interest rates are at 2%, the home currency will likely depreciate over time according to the IFE, making home country exports cheaper and imports more expensive.

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Case 2: Home inflation and interest rate are lower compared to the foreign country

Implications of the International Fisher Effect (IFE):

Lower inflation and interest rates in the home country relative to the foreign country will lead to lower nominal interest rates. According to the IFE, this will result in the domestic currency appreciating in the future.

Imports: A stronger domestic currency makes imports cheaper, increasing the demand for foreign goods.

Exports: Home country exports become more expensive for foreign buyers, potentially leading to a decrease in demand for exports.

Currency Effect: The domestic currency will appreciate relative to the foreign currency due to lower inflation and interest rates.

Example: If the home country’s interest rates are 1% and inflation is low, while the foreign country’s interest rates are 4%, the home currency will likely appreciate over time, making home country exports more expensive and imports cheaper.

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Case 2: Home inflation and interest rate are lower compared to the foreign country

Implications of the International Fisher Effect (IFE):

Lower inflation and interest rates in the home country relative to the foreign country will lead to lower nominal interest rates. According to the IFE, this will result in the domestic currency appreciating in the future.

Imports: A stronger domestic currency makes imports cheaper, increasing the demand for foreign goods.

Exports: Home country exports become more expensive for foreign buyers, potentially leading to a decrease in demand for exports.

Currency Effect: The domestic currency will appreciate relative to the foreign currency due to lower inflation and interest rates.

Example: If the home country’s interest rates are 1% and inflation is low, while the foreign country’s interest rates are 4%, the home currency will likely appreciate over time, making home country exports more expensive and imports cheaper.

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Efecto Fisher y tipo de cambio real  | Macroeconomía Internacional 20

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¿Cómo me afecta a mí la evolución de los tipos de cambio?

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¿Cómo me afecta a mí la evolución de los tipos de cambio?

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Finanzas & Desarrollo -- Números anteriores de F&D

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Los 3 países de América Latina que han sufrido las peores devaluaciones de su moneda este año frente al dólar - BBC News Mundo

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El dólar se ha fortalecido a nivel global frente al resto de las monedas. En Latinoamérica hay tres grandes economías que han sido duramente golpeadas este año por la depreciación de sus monedas. ¿Por qué se han depreciado tanto?

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Efecto Fisher: la relación entre el dinero, la inflación y los tipos de interés - FundsPeople España

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El efecto fisher es la relación entre dinero, inflación y tipos de interés tiene su base en la teoría cuantitativa del dinero.