Inflation-Proof Credits and Financial Instruments. Making the Fisher Hypothesis a Reality
The financial crises of recent years have revealed the sensitivity and vulnerability of nominal interest rates to inflation, which reduces the value of money and affects the returns of financial instruments. The lack of resources to mitigate the impact of inflation has been a limiting factor that has had a marked effect on economies and on the development of mortgage markets in Latin America’s unstable economies. This study demonstrates an alternative financial method that compensates losses caused by inflation in nominal fixed-rate mortgages and ensures returns in real terms for banks and investors, while offering families the possibility that their payments may represent an increasingly smaller percentage of their income, even in high-inflation scenarios such as those seen in Latin America during the 1980s and 1990s. The new methodology herein proposed maintains in each period the parity of Fisher’s Law with inflation. That is, the real interest rate is kept fixed throughout the life of the mortgage and in any economic conditions that may arise.
|Date of creation:||May 2004|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ioannis Karatzas & Martin Shubik & William D. Sudderth & John Geanakoplos, 2003.
"The Harmonic Fisher Equation and the Inflationary Bias of Real Uncertainty,"
Cowles Foundation Discussion Papers
1424, Cowles Foundation for Research in Economics, Yale University.
- John Geanakoplos & Ioannis Karatzas & Martin Shubik & William D. Sudderth, 2004. "The Harmonic Fisher Equation and the Inflationary Bias of Real Uncertainty," Yale School of Management Working Papers ysm388, Yale School of Management.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:343. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.