“Fisher Effect” Theory and “Fisher Paradox” in China’s Economy

“Fisher Effect” is the famous theoretical assumption about the interest rate and inflation rate. The paper first elaborates the basic principle of “Fisher Effect” theory, then finds the “Fisher Paradox” that may exist in China’s economy from the domestic and foreign scholars’ empirical study. Moreover, based on the data of China in 1980-2012, we conduct the Granger Causality Test of “Fisher Effect” and preliminarily conclude that from the empirical perspective, China does not exist long- term stable relationship between interest rate and inflation rate. Finally, it explains China’s “Fisher Paradox” root in the controlling characteristics of interest rate from policy perspective.