The Fisher Effect: Phenomenology, Theory and Policy

Abstract

Apart from myself this paper features two main protagonists. One I label a ‘vulgar Fisherian.’ He is here because his views are rather widespread among commentators on the financial markets. The other is a Post Keynesian, skeptical regarding the whole idea of the Fisher effect. She is here because she is an ally against the vulgar Fisherian, because her views are of intrinsic interest, and because I wish to explain my differences with her on certain points. I have recently (Cottrell 1994) criticized some of Keynes’s formulations regarding the Fisher effect, as well as the appropriation and development of these formulations by Post Keynesians. While I stand by those criticisms, one of my objects here is to balance them by indicating an area of agreement. Another object — advertised in my title — is to relate the theoretical debate over the Fisher effect to the conduct of monetary policy, recent US monetary policy in particular. But before embarking on the discussion of theory and policy some empirical preliminaries are in order. The question here is whether, in discussing the Fisher effect, we are operating purely in the realm of doctrine or whether we are discussing the appropriate interpretation of a genuine ‘stylized fact.’