Real Interest Parity and the Fisher Hypothesis

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. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.