Nominal Interest rate The quantity theory the Fisher equation An increase in the rate of money growth of 1% causes a 1% increase in the rate of inflation then a 1% increase in the rate of inflation in turn causes a 1% increase in the nominal interest rate This one-for-one relation between the inflation rate and the nominal interest rate is called the Fisher effect (one-for-one refers to % not its value)Nominal Interest Rate The quantity theory + the Fisher equation An increase in the rate of money growth of 1% causes a 1% increase in the rate of inflation; then a 1% increase in the rate of inflation in turn causes a 1% increase in the nominal interest rate This one-for-one relation between the inflation rate and the nominal interest rate is called the Fisher effect. (one-for-one refers to %, not its value)