Fisher equation

In financial mathematics and economics, the Fisher equation expresses the relationship between nominal interest rates, real interest rates, and inflation. Named after Irving Fisher, an American economist, it can be expressed as real interest rate ≈ nominal interest rate − inflation rate.

In more formal terms, where ${\displaystyle r}$ equals the real interest rate, ${\displaystyle i}$ equals the nominal interest rate, and ${\displaystyle \pi }$ equals the inflation rate, then ${\displaystyle (1+i)=(1+r)(1+\pi )}$. The approximation of ${\displaystyle r=i-\pi }$ is often used instead since the nominal interest rate, real interest rate, and inflation rate are usually close to zero.