FISHER EFFECT (Fisher effect) - a concept that formally takes into account the impact of inflation on the interest rate on a loan or bond. In the equation proposed by Irving Fisher (1867-1947), the nominal interest rate for a loan is expressed as the sum of the real interest rate and the inflation rate expected over the life of the loan: R = r + F, where R is the nominal interest rate, r is the real interest rate, and F is the annual inflation rate. 1 So if inflation is

6% per year, and the real interest rate is 4%, then the nominal interest rate will be 10%. The inflation premium (6%), included in the nominal interest rate, makes it possible to compensate for the losses of creditors associated with the fall in the purchasing power of the money lent by the time they are returned by the borrowers.

The Fisher effect implies a direct relationship between inflation and nominal interest rates, when changes in the annual inflation rate lead to corresponding changes in nominal interest rates.

__________________

1 Here is a simplified version of the Fisher equation, which gives a good approximation for small interest rates and

the rate of inflation. Exact formula: R = r + F + rF. In the conditions of the example, the exact value of R = 0.06 + 0.04 + 0.06 0.04 = 0.1024, i.e. 10.24% per annum. (Ed. note)

Cm. Fisher Irving Fisher Irving (1867 - 1947), From Irving Fisher to Alexander Konyus (Economic School, lecture 19.2)

I.Fisher. The influence of monetary systems on the purchasing power of money ,

I.Fisher. The influence of the quantity of money and other factors on the purchasing power of money and on each other

QUANTITY THEORY OF MONEY (quantity theory of mo-ney)

NOMINAL INTEREST RATE (nominal interest rate) - the interest rate paid on a loan without adjusting for inflation.

Wed REAL INTEREST RATE .

REAL INTEREST RATE (real interest rate) - the interest rate paid on a loan, adjusted for inflation. If a borrower has to pay, say, 10% (nominal interest rate) on a loan during a year in which the inflation rate was 6%, then the real interest rate would be only 4%. Inflation reduces the real burden of interest payments on borrowers, while at the same time reducing the real remuneration of lenders.

See FISHER EFFECT.

INFLATION (inflation) - an increase in the general level of prices in the economy, continuing for a certain period of time. Annual price increases can be small and gradual (creeping inflation) or large and accelerating (hyperinflation). The rate of inflation can be measured, for example, by means of the consumer price index (see price index), which reflects annual percentage changes in the prices of consumer goods. See fig. 43. It should be noted that inflation reduces the purchasing power of money (see real values).

Rice. 42. Inflation gap ,

a.The aggregate supply schedule is drawn as a 45° line because firms will only plan for any level of output if they assume that total spending (aggregate demand) will be such that they will be able to sell all of their output. However, if the economy reaches a national income level corresponding to full employment ( O Y 1 ), then the volume of output cannot be increased, and at this level the aggregate supply line becomes vertical. If aggregate demand is at the level indicated by line AD, the economy will operate at full employment without inflation (point E). However, if aggregate demand is at a higher level, like AD 1 this excess aggregate demand will create an inflationary gap (equal to EG), pulling prices up,

b. In an alternative model where aggregate demand and aggregate supply are expressed in terms of real national income and the price level, the inflationary gap is expressed as the difference between the price level (RR) referring to the level of aggregate demand at full employment (AD) and the price level (RR 1 ) related to a higher level of aggregate demand (AD 1 ) at the level of real national income O Y 1 . See demand-pull inflation.

Overcoming inflation has long been one of the main goals of macroeconomic policy. Inflation is seen as undesirable: it adversely affects income distribution (inflation hurts people on a fixed income), lending and borrowing (creditors suffer losses, borrowers benefit), increases speculation (diversion of savings from production to speculation in goods and real estate), and worsens competitiveness in international trade (exports become relatively more expensive, while imports become cheaper). Hyperinflation is especially dangerous, as people lose confidence in money as a medium of exchange and the economic system falls into a state close to collapse.

There are two main explanations for the causes of inflation:

(a) the presence of excess demand at full employment, which pulls up prices (demand inflation);

(b) an increase in the cost of factors of production (labor and raw materials), which pushes up prices (cost inflation).

According to the concept of the monetarist school (see MONETARISM), demand-pull inflation is due to the creation of an excess amount of money. Monetarists propose to apply strict control over the money supply as a means of reducing excess aggregate spending (see monetary policy). The Keynesian school also promotes the policy of reducing aggregate spending as a way to contain excess demand, but proposes to implement this policy through tax increases and government spending cuts (see fiscal policy). Cost-push inflation is mainly due to an excess increase in monetary rates. wages(i.e., a wage rate higher than what can actually be paid for by increased productivity growth) and occasional commodity price hikes (a clear illustration of this is the increase in oil prices implemented by OPEC in 1973 and 1979). Cost inflation driven by demands for excessive wage increases can be curbed or eliminated either directly by imposing price and income controls (see price and income policy) or indirectly through "exhortations" and measures to reduce the monopoly power of unions.

Pyotr Ilyich Grebennikov.

COST INFLATION (cost-push inflation) is a general increase in prices caused by an increase in the cost of production factors. The cost of factors of production, on the other hand, may rise due to an increase in the cost of raw materials and energy due to their shortage on a global scale, or as a result of the action of cartels (for example, oil), or the fall in the country's exchange rate (see), or because wage rates in economy is growing faster than output per capita (). In the latter case, institutional factors such as the use of wage comparability and differentiation arguments in collective bargaining negotiations, and the persistence of restrictive labor practices can help raise wages and limit opportunities for productivity growth. Faced with rising factor costs, manufacturers try to pass on the increased costs by charging higher prices. To keep the unit gross margin unchanged, producers need to fully offset the increased costs by inflation, but whether or not they are able to do so depends on the price elasticity of demand for their products.

COMPARABILITY (comparability) - an approach to determining wages, consisting in the fact that in the course of negotiations on a collective agreement, the level or rate of increase in the wages of any particular group of workers or industry is associated with the level or rate of increase in wages of persons in other professions or industries.

Comparability can lead to

INFLATION OF DEMAND (demand-pull inflation) - an increase in the general price level as a result of an excess of aggregate demand compared to potential supply in the economy. At the level of output corresponding to full employment (potential gross domestic product), excess demand drives up prices while real output remains unchanged (see inflationary gap). According to the concept of monetarism, excess demand arises from too rapid growth in the money supply.

GNP DEFLATOR (GNP deflator) is a price index used to adjust the gross national product (GNP) in order to obtain real GNP (see). Real GNP is important because it reflects the physical output of goods and services, and not the sum of their monetary terms. Sometimes it seems that the production of goods and services in the economy has increased () because monetary GNP has increased, but this may be a consequence of price increases (), which is not behind the increase in the physical volume of production. The GNP deflator is designed to remove the effect of price changes and only take into account real changes.

DEFLATION (deflation) - a decrease in the level of national income and output, usually accompanied by a fall in the general price level (disinflation).

The authorities often deliberately induce deflation in order to reduce inflation and improve the balance of payments by reducing the demand for imports. Deflationary policy uses fiscal measures (such as raising taxes) and monetary measures (such as raising interest rates).

Cm. ,

INTERNATIONAL FISHER EFFECT (international Fisher effect) - a situation in which the difference in nominal interest rates in different countries reflects the expected rate of change in the exchange rate of their currencies.

For example, if British investors assume that the US dollar will appreciate, say, 5% per year against the pound sterling, then in order to create currency parity between the two countries, they are ready to allow the annual interest rates on securities denominated in dollars to be would be approximately 5% less than the annual interest rates on securities denominated in pounds sterling. From the borrower's point of view, under the Fisher effect, the cost of equivalent loans in these alternative currencies will be the same, despite the difference in interest rates.

The international Fisher effect can be compared to the internal Fisher effect, when nominal interest rates reflect expected real interest rates and the expected rate of price change (inflation). The international equivalent of inflation is

COMPOUND INTEREST(compound interest) - interest on a loan, which is charged not only on the original loan amount, but also on the interest that has increased before. This means that interest payments grow exponentially over time; For example, on a loan of 100l. Art. with compound interest equal to 10% per year, there will be accumulated debt by the end of the first year at 110l. Art., by the end of the second year - by 121 f. Art. etc. according to the following formula:

(simple interest) - interest on a loan, which is charged only on the initial loan amount. This means that over time, the amount of interest increases linearly. For example, a loan of £100 Art. with a simple interest of 10% per annum rises to £110. Art. by the end of the first year, up to 120l. Art. by the end of the second year, etc.

Wed

terminology search, biographical materials, textbooks andscientific papers on the websites of the School of Economics:

Inflation is defined as the process of an increase in the general (average) price level in the economy, which is equivalent to a decrease in the purchasing power of money. Inflation is called uniform if the rate of general inflation does not depend on time (on the step number of the calculation period). Inflation is called homogeneous if the rate of change in the prices of all goods and services depends only on the step number of the calculation period, but not on the nature of the goods or services. Inflation is said to be constant if its rate does not change over time.

There are two main indicators (parameters) that characterize inflation: the inflation rate and the inflation index. Below we give a definition and give formulas for calculating both indicators (parameters) of inflation.

Inflation is estimated over a certain period of time.

So, to assess inflation at the end of the period in relation to the period, two main indicators are used:

1) the rate (level) of inflation - the relative increase in the average price level in the period under review

2) inflation index (price change index) - an increase in the average price level in the period under review

Relationship between rate and inflation index

The question arises - at what interest rate will the accumulation only compensate for inflation? If a we are talking about simple interest, then the minimum allowable (barrier) rate:

For compound interest:

A rate greater than is called a positive interest rate.

The owners of money make various attempts to compensate for the depreciation of money. The most common is the adjustment of the interest rate at which the accumulation is carried out, i.e. an increase in the rate by the amount of the so-called inflationary premium, in other words, the rate is indexed. The final value can be called the gross rate.

Let's discuss methods for determining the gross rate. If we are talking about full compensation for inflation in the amount of the gross rate at , then we find the required value from the equality:

where is the gross rate

From here gross rate for simple interest:

The value of the gross rate for is found from the equality:

From here gross rate for compound interest:

The last formula is called Fisher formula. Sometimes it is also written as:

where i - real interest rate

In practice, the inflation-adjusted rate is often calculated differently, namely:

The last formula, in comparison with the previous one, contains one additional term, which, if the values ​​are small, can be neglected. If they are significant, then the error (not in favor of the owner of the money) will become very noticeable.

1st cycle - textile factories, industrial use of coal. 2nd cycle - coal mining and ferrous metallurgy, railway construction, steam engine. 3rd cycle - heavy engineering, electric power industry, inorganic chemistry, steel production and electric motors. 4th cycle - production of automobiles and other machines, chemical industry, oil refining and internal combustion engines, mass production. 5th cycle - development of electronics, robotics, computing, laser and telecommunications technology. 6th cycle - perhaps NBIC convergence (convergence of nano-, bio-, information and cognitive technologies). After the 2030s (2050s according to other sources), a technological singularity is possible, which is not amenable to this moment analysis and forecast. Thus, the Kondratiev cycles are likely to end closer to 2030.

18. Equation of exchange by Irving Fisher. Nominal and real interest rates (formula).

Fisher's equation - the equation describing the relationship between the tempo inflation, nominal and real interest rates:

where is the nominal interest rate;

Real interest rate;

The rate of inflation.

The equation shows that the nominal interest rate can change for two reasons:

due to changes real rate percent;

due to the rate of inflation.

Distinguish between nominal and real interest rates.

Real interest rate is the interest rate minus inflation.

The relationship of the real nominal rate and inflation in the general case is described by the following (approximate) formula:

Nominal interest rate

Real interest rate

Expected or projected rate of inflation.

Irving Fisher proposed a more precise formula for the relationship between real, nominal rates and inflation, expressed by the Fisher formula named after him:

For and both formulas give the same value. It is easy to see that for small values ​​of the inflation rate, the results differ little, but if inflation is high, then Fisher's formula should be applied.

According to Fisher, the real interest rate should be numerically equal to marginal productivity of capital.

11. The level of cyclical unemployment: the law a. Okun. Economic losses from the operation of the law a. Okun (on the graph of the as curve).

Studies of the relationship between the rate of increase in real GDP and the unemployment rate are expressed in the so-called Okun's law. Okun's law(the law of the natural rate of unemployment) - if the actual unemployment rate exceeds the natural rate by 1%, then the gap between the actual GDP and the potential one is 2.5% unemployment.

Economic costs - a consequence of the operation of Okun's law - the lag of the actual volume of GDP from its potential volume.

12. Cycle and trend. Characteristics of the phases of the economic cycle.

Business cycles - cyclical changes in the economic environment, regular fluctuations in the level of business activity from economic recovery (boom) to recession (economic depression). Four relatively clearly distinguishable phases are distinguished in business cycles: peak, decline, bottom(or "lowest point") and climb.

Climb occurs after reaching the lowest point of the cycle (bottom). It is characterized by a gradual increase in employment and production. Many economists believe that low inflation rates are inherent in this stage. There is an introduction of innovations in the economy with a short payback period. Demand deferred during the previous recession is realized.

Peak, or the top of the business cycle, is " highest point» economic recovery. In this phase, unemployment usually reaches its highest low level or disappears completely, production capacities operate at maximum or close to it load, that is, almost all material and labor available in the country are involved in production. resources. Usually, though not always, inflation rises during peaks. The gradual saturation of markets increases competition, which reduces the rate of return and increases the average payback period. The need for long-term lending is growing with a gradual decrease in the ability to repay loans. Recession (recession) is characterized by a reduction in production volumes and a decrease in business and investment activity. As a result, unemployment increases. Officially, the phase of the economic downturn, or recession, is considered to be a fall in business activity that lasts more than three months in a row. Bottom(depression) of the business cycle is the "trough" of production and employment. It is believed that this phase of the cycle is usually not long.

1The subject of macroeconomics and its place in the structure of the socio-economic formation.

Macroeconomics- studies the functioning of the national economy as a whole. The patterns of development of productive forces and production relations on the scale of the whole society. The objects of research are: gross national product; the national income of society; general price level; employment and unemployment across society; inflation, etc.

Economic theory-science, predstavl. a system of knowledge, a cat. describes, explains and predicts the functioning of certain economies. phenomena. John Keynes differentiated the economy into positive (characterized as a positive economy, describes what is in the national economy at the moment) and normative (characteristic of those economic processes and phenomena that should occur in the future)

ME began to develop in the 20-30s of the last century. The author of the term is Ragnar Frisch.

Subject of ME study:

Functioning of the national economy; -analysis of ext. links that unite the entire economy into a single whole; - the inclusion of the national economy in the world.

Subject of study-circulation of resources and funds in the economy-models---:

F. Quesnay's table, 2) K. Marx's reproduction schemes, 3) balance method, 4) system of national accounts.

Methodology for calculating the ME indicators: by total expenses, by total income, by the value added method

Economic growth, 2) price stability, 3) full employment, 4) equilibrium of foreign trade operations, in which exports are equal to imports (“magic quadrangle”)

When implementing an investment project, its income and costs will change under the influence of both the scheme for implementing the project itself and external circumstances. Consider the features of calculating the cost of the project in constant and current prices, the formula for calculating the discount rate, taking into account inflation.

If the cost parameters of the project at the current moment (sales prices of products, prices for resources) can be estimated with a high degree of reliability, then forecasts of inflationary changes and long-term price growth forecasts are somewhat reminiscent of astrological predictions.

Thus, the project developer is faced with the issue of choosing a calculation method.

• Calculation at constant prices, which uses monetary units with constant purchasing power, i.e. the scale of prices determined at the time of evaluation of the investment project is preserved. The essence of the calculation at constant prices can be said in other words: this method assumes that the price ratios prevailing at the time of the evaluation of the investment project will not change during the entire period of its consideration. In fact, this means nothing more than the assumption that all elements of the original data grow at the same rate.
• Calculation in current prices, which involves forecasting and taking into account in the calculations the rate of price growth for the main components of the project's income and costs.

Each calculation method has its own advantages and disadvantages.

Nominal and real discount rate adjusted for inflation

One of the important advantages of the constant price method is the ability to separate factors that are a consequence of the investment idea and that can be influenced during the development of the project, and external factors that cannot be adjusted. Also, the undoubted advantage of calculations at constant prices is the comparability of cost parameters different periods.

When calculating at current prices, the picture of the development of the project loses visibility: it is impossible to compare the cost indicators of two different periods and trace the trends in the development of the project. It is impossible to single out exactly which changes are the direct “merit of the idea” of the project, which ones are the result of the predicted macroeconomic changes. For example, the proceeds from the sale of products may grow due to the rate of price growth predicted by the developer, while the natural volumes of production may remain at the same level or even decrease. The balance of funds on the current account of the project under the influence of inflation also acquires a purchasing power that is difficult to interpret and requires comparison with the current moment.

On the other hand, a more realistic picture of cash flow can be obtained by making calculations at current prices.

Due to the fact that calculation at constant prices allows you to see the real content of the processes taking place in the project and get a result that characterizes the internal possibilities of an investment idea, calculation at constant prices is often chosen as the main one when performing a commercial evaluation of projects. Conclusions obtained on the basis of calculations at constant prices are verified at the next stage of calculations - calculation at current prices. The main task of the stage of calculations in current prices is to establish how exactly the planned price changes are reflected in the final indicators of the project - in the direction of worsening or improving the results, how critical this effect is.

The description of the calculation method at constant prices is often accompanied by the following comment: “Since the calculation at constant prices assumes that inflation is ignored when describing the cost parameters of the project, the inflation component should also be excluded from the parameters that reflect the cost of capital, in particular interest rates. In other words, interest rates must be converted from nominal, declared, to real.

To recalculate nominal discount rates into real ones, the following formula is used:

R real = R nominal − Inflation.

Here R real - real discount rate;
R nominal - nominal discount rate.

In conditions of fairly high inflation (above 3–4% per year), the formula for recalculating nominal discount rates into real ones becomes somewhat more complicated:

Of course, there is logic in using real discount rates when making calculations at constant prices. This approach fully justifies itself when choosing a comparison rate. However, the use of real rates when calculating interest on loans (dividend payments) justifies itself, allows you to get the correct result - only with insignificant differences in the cost of credit resources from the inflation index. As practice shows, with significant differences in the cost of credit resources from the inflation index, the calculation of interest paid on the basis of the real rate can lead to an overestimation of the financial capabilities of the project to repay obligations on early stages planning.

It is logical to assume that calculation at constant prices using real rates should adequately model the situation of calculation at current prices using nominal rates. In other words, both calculations should give the same assessment of the project's ability to pay off the attracted funding sources. Unfortunately, this requirement is not always met. Let's check the statement on a specific digital example.

Example

We will build a lending schedule for a project whose first year of implementation involves investment costs in the amount of 1,000 thousand rubles. (Table 1). Financing of investment costs is carried out at the expense of a loan in the amount of 1,000 thousand rubles. worth 19% per annum with annual interest payments. The planned annual income of the project (revenue) is 680 thousand rubles, current costs - 200 thousand rubles. The inflation index announced for the project appraisal period is 14%. It is planned to maintain the inflation index at a similar level for the coming year. Taking into account the indicated inflation index, the real interest rate will be 19% - 14% = 5%.

Table 1. Calculation in the existing scale of prices (constant prices). Formation of a lending schedule using a real interest rate

	1st year	2nd year	3rd year	4th year
Revenues from sales	0	680	680	680
Attracting (+) and returning (-) loans	1 000	–327	–339	–334
Investment costs	–1 000	0	0	0
	0	–200	–200	–200
Interest on loans (calculated based on the real rate of 5% per annum)	0	–50	–34	–17
Income tax (24%)	0	–103	–107	–111
	0	0	0	18
	0	0	0	18

Now let's form the flows of the project, taking into account the rate of price growth. Assume that the price growth rate corresponds to the inflation rate and is 14% per year (price growth rates do not always correspond to inflation growth rates). Let's check how accurately the real rates used in the calculation in constant prices made it possible to form a project lending schedule (Table 2).

Table 2. Calculation taking into account price growth (current prices). Formation of a lending schedule using a nominal interest rate

Cash flow statement	1st year	2nd year	3rd year	4th year
Revenues from sales	0	680 × 14% = 775	775 x 14% = 884	1007
Attracting (+) and returning (-) loans	1 000	–271	–369	–360
Investment costs	–1 000	0	0	0
Operating costs excluding depreciation	0	-220 × 14% = -228	-228 × 14% = -2600	–296
Interest on loans (calculated based on the nominal rate of 19% per annum)	0	–190	–139	–68
Income tax (24%)	0	–86	–116	–154
Period cash flow	0	0	0	128
Cumulative cash flows (settlement account), thousand rubles	0	0	0	128

When comparing the estimated amounts of repayment of the principal debt in the 2nd year, it will be found that the calculation at constant prices using the real rate overestimated the possible amount of repayment of the principal debt by 20% (327 thousand rubles) in relation to the calculation at current prices (271 thousand . rub.). If we carry out a similar calculation at a higher interest rate and the same inflation rate, the difference between the obtained values ​​for the 2nd and 3rd years will be even more significant. If we carry out a similar calculation at a lower interest rate and the same inflation rate, the difference in the obtained values ​​for the 2nd year will be less significant; at the same time, for the 3rd and subsequent years, the calculation at constant prices using the real rate will give a more pessimistic picture of the project's ability to repay loans in relation to reality.

Since often the term of loan agreements is 2-3 years, it is necessary to remember these points. Thus, with a short duration of the loan agreement, it is advisable to use the nominal rates announced by the bank even when calculating at constant prices. This approach will reduce the risk of failures in repayment of attracted loans.

Irving Fisher is an American neoclassical economist. Born February 27, 1867 in Saugerties, pc. New York. He made a great contribution to the creation of the theory of money, and also derived the “Fischer equation” and the “exchange equation”.

His work was taken as a basis modern techniques to calculate the rate of inflation. In addition, they helped in many ways to understand the patterns of inflation and pricing.

Full and simplified Fisher's formula

In a simplified form, the formula will look like this:

i = r + p

• i - nominal interest rate;
• r is the real interest rate;
• π is the rate of inflation.

This entry is approximate. How less value r and π, the more precisely this equation is fulfilled.

The following would be more accurate:

r = (1 + i)/(1 + π) - 1 = (i - π)/(1 + π)

Quantity Theory of Money

The quantity theory of money is an economic theory that studies the impact of money on the economic system.

In accordance with the model put forward by Irving Fisher, the state must regulate the amount of money in the economy in order to avoid their shortage or excess.

According to this theory, the phenomenon of inflation arises due to non-compliance with these principles.

Insufficient or excessive amount of money supply in circulation entails an increase in the rate of inflation.

In turn, the growth of inflation implies an increase in the nominal interest rate.

• Rated the interest rate reflects only the current income from deposits, excluding inflation.
• Real The interest rate is the nominal rate of interest minus the expected rate of inflation.

Fisher's equation describes the relationship between these two indicators and the rate of inflation.

Video

How to use to calculate the return on investment

Suppose you make a deposit of 10,000, the nominal interest rate is 10%, and the inflation rate is 5% per year. In this case, the real interest rate will be 10% - 5% = 5%. Thus, the real interest rate is the lower, the higher the inflation rate.

It is this rate that should be taken into account in order to calculate the amount of money that this deposit will bring you in the future.

Interest calculation types

As a rule, the accrual of interest on profits occurs in accordance with the compound interest formula.

Compound interest is a method of accruing interest on profits, in which they are added to the principal amount and subsequently participate in the creation of new profits.

A short summary of the compound interest formula looks like this:

K = X * (1 + %)n

• K is the total amount;
• X is the initial amount;
• % - percentage value of payments;
• n is the number of periods.

Wherein, real interest, which you get by depositing at compound interest, will be the less, the higher the inflation rate.

At the same time, for any type of investment, it makes sense to calculate the effective (real) interest rate: in essence, this is the percentage of the initial deposit that the investor will receive at the end of the investment period. Simply put, it is the ratio of the amount received to the amount originally invested.

r(ef) = (P n - P)/P

• r ef is the effective percentage;
• Pn is the total amount;
• P is the initial contribution.

Using the compound interest formula, we get:

r ef = (1 + r/m) m - 1

Where m is the number of accruals for the period.

International Fisher effect

The international Fisher effect is an exchange rate theory put forth by Irving Fisher. The essence of this model is the calculation of present and future nominal interest rates in order to determine the dynamics of changes in the exchange rate. This theory works in its purest form if capital moves freely between states whose currencies can be correlated with each other in value.

Analyzing the precedents of rising inflation in different countries, Fisher noticed a pattern in the fact that real interest rates, despite the growth in the amount of money, do not increase. This phenomenon is explained by the fact that both parameters are balanced over time through market arbitrage. This balance is maintained for the reason that the interest rate is set taking into account the risk of inflation and market forecasts for the currency pair. This phenomenon has been named Fisher effect .

Extrapolating this theory to international economic relations, Irving Fisher concluded that a change in nominal interest rates has a direct impact on the appreciation or depreciation of the currency.

This model has not been tested in real conditions. Its main disadvantage It is generally accepted that it is necessary to fulfill purchasing power parity (the same cost of similar goods in different countries) for accurate forecasting. And, besides, it is not known whether the international Fisher effect can be used in modern conditions, taking into account fluctuating exchange rates.

Inflation forecasting

The phenomenon of inflation is an excessive amount of money circulating in the country, which leads to their depreciation.

The classification of inflation occurs on the basis of:

uniformity - the dependence of the inflation rate on time.

Uniformity — distribution of influence on all goods and resources.

Inflation forecasting is calculated using inflation index and hidden inflation.

The main factors in forecasting inflation are:

• change in the exchange rate;
• increase in the amount of money;
• change in interest rates;

Another common method is to calculate the inflation rate based on the GDP deflator. For forecasting in this technique, the following changes in the economy are recorded:

• profit change;
• change in payments to consumers;
• changes in import and export prices;
• change in rates.

Calculation of return on investment, taking into account the level of inflation and without it

The formula for return without taking into account inflation will look like this:

X \u003d ((P n - P) / P) * 100%

• X - profitability;
• P n - total amount;
• P - initial payment;

In this form, the final profitability is calculated without taking into account the time spent.

X t \u003d ((P n - P) / P) * (365 / T) * 100%

Where T is the number of days the asset is held.

Both methods do not take into account the impact of inflation on profitability.

Yield adjusted for inflation (real yield) should be calculated using the formula:

R = (1 + X) / (1 + i) - 1

• R - real profitability;
• X is the nominal rate of return;
• i is inflation.

Based on the Fisher model, one main conclusion can be drawn: inflation does not generate income.

The increase in the nominal rate due to inflation will never be greater than the amount of money invested that has depreciated. In addition, a high inflation rate implies significant risks for banks, and the compensation of these risks lies on the shoulders of depositors.

Application of the Fisher Formula in International Investments

As you can see, in the above formulas and examples, high inflation always reduces the return on investment, at a constant nominal rate.

Thus, the main criterion for the reliability of an investment is not the amount of payments in percentage terms, but inflation target.

Description of the Russian investment market using the Fisher formula

The above model is clearly seen on the example of the investment market of the Russian Federation.

The fall in inflation in 2011-2013 from 8.78% to 6.5% led to an increase in foreign investment: in 2008-2009 they did not exceed 43 billion rubles. dollars a year, and by 2013 reached the mark of 70 billion. dollars.

The sharp increase in inflation in 2014-2015 led to a decrease in foreign investment to a historic low. Over these two years, the amount of investments in the Russian economy amounted to only 29 billion rubles. dollars.

At the moment, inflation in Russia has fallen to 2.09%, which has already led to an influx of new investments from investors.

In this example, you can see that in matters of international investment, the main parameter is the real interest rate, which is calculated using the Fisher formula.

How is the inflation index for goods and services calculated?

The inflation index or consumer price index is an indicator that reflects changes in the prices of goods and services purchased by the population.

Numerically, the inflation index is the ratio of prices for goods in the reporting period to prices for similar goods in the base period.

i p = p 1 / p

• i p - inflation index;
• p 1 - prices for goods in the reporting period;
• p 2 - prices for goods in the base period.

Simply put, the inflation index indicates how many times prices have changed over a certain period of time.

Knowing the inflation index, we can draw a conclusion about the dynamics of inflation. If the inflation index takes on values ​​greater than one, then prices are rising, which means that inflation is also growing. The inflation index is less than one — inflation takes negative values.

To predict changes in the inflation index, the following methods are used:

Laspeyres formula:

I L = (∑p 1 * q) / (∑p 0 * q 0)

• I L is the Laspeyres index;
• The numerator is the total cost of goods sold in the previous period at the prices of the reporting period;
• The denominator is the real value of goods in the previous period.

Inflation, when prices rise, is given a high estimate, and when prices fall, it is underestimated.

Paasche index:

Ip = (∑p 1 * q) / (∑p 0 * q 1)

The numerator is the actual cost of products of the reporting period;

The denominator is the actual cost of the products of the reporting period.

Ideal Fisher Price Index:

I p = √ (∑p 1 * q) / (∑p 0 * q 1) * (∑p 1 * q) / (∑p 0 * q 0)

Accounting for inflation when calculating an investment project

Accounting for inflation in such investments plays a key role. Inflation can affect project implementation in two ways:

• in kind- that is, entail a change in the project implementation plan.
• In terms of money- that is, affect the final profitability of the project.

Ways to influence the investment project in the event of an increase in inflation:

1. Change in currency flows depending on inflation;
2. Accounting for the inflation premium in the discount rate.

An analysis of the level of inflation and its possible impact on an investment project requires the following measures:

• consumer index accounting;
• forecasting changes in the inflation index;
• forecasting changes in the income of the population;
• forecasting the amount of cash collections.

Fisher's formula for calculating the dependence of the cost of goods on the amount of money

In general, Fisher's formula for calculating the dependence of the cost of goods on the amount of money has the following entry:

• M - the volume of money supply in circulation;
• V is the frequency with which money is used;
• P - the level of cost of goods;
• Q - quantities of goods in circulation.

By transforming this record, we can express the price level: P=MV/Q.

The main conclusion from this formula is inverse proportionality between the value of money and its quantity. Thus, for the normal circulation of goods within the state, it is required to control the amount of money in circulation. An increase in the quantity of goods and prices for them requires an increase in the amount of money, and, in the case of a decrease in these indicators, the money supply should be reduced. This kind of regulation of the amount of money in circulation is assigned to the state apparatus.

Fisher's formula as applied to monopoly and competitive pricing

Pure monopoly presupposes, first of all, that one producer completely controls the market and is perfectly aware of its state. The main goal of a monopoly is to maximize profit at minimum cost. The monopoly always sets the price above the marginal cost and the output is lower than under perfect competition.

The presence of a monopoly producer on the market usually has serious economic consequences: the consumer spends more money than in conditions of fierce competition, while the rise in prices occurs along with the growth of the inflation index.

If the change in these parameters is taken into account in the Fisher formula, then we will get an increase in the money supply and a constant decrease in the number of circulating goods. This situation leads the economy into a vicious cycle in which an increase in the rate of inflation leads to an increase only to an increase in prices, which in the end stimulates the rate of inflation even more.

The competitive market, in turn, reacts to an increase in the inflation index in a completely different way. Market arbitrage leads to the conformity of prices to the conjuncture. Thus, competition prevents an excessive increase in the money supply in circulation.

An example of the relationship between changes in interest rates and inflation for Russia

On the example of Russia, you can see the direct dependence of interest rates on deposits on inflation

Thus, it can be seen that the instability of external conditions and the increase in volatility in the financial markets makes the Central Bank lower rates when inflation rises.