Irving Fisher came up with the theory of the Fisher Effect. With the assumption of all things being constant, the Fisher Effect is defines as real interest rate (allow you to know how much purchasing power you have over time) is equal to the nominal interest rate (how your money will be value over time) minus the expected inflation rate (rate that is adjusting to the current monetary market). The Fisher Effect is the change of one constant derived because of the change on another constant. For instance, if the inflation rate is increase, then the real interest rate will eventually increase to balance out the equation. For example: the real interest rate is held constant at 6.5, inflation has increase from 1 to 2, the Fisher Effect will prove that the nominal interest rate would have to increase from 7.5% to 8.5%. During deflation, the nominal interest rate will decrease to reflect the deflation. During hyperinflation, the nominal interest rate will adjusted to the expected inflation rate during that period.

When inflation rate change the nominal interest rate (rate you get from the bank for your saving account) is directly related, the nominal interest rate will change depending on it inflation rate change. The lower the inflation rate, the lower the nominal interest rate will be. These two rates are directly correlation to each other. In the long- run, the Fisher Effect prove that the monetary that us purely develop will have no affect to that countries change in prices. For Examples: If the constant inflation was at 5% in every 5 years, but it change to 10% every 5 years. The currency will eventually increase up with the inflation rate by increasing 5% to 10% every 5 years.

Sources:

http://www.investorwords.com/6519/Fisher_effect.html

http://www.investopedia.com/terms/f/fishereffect.asp