Finding Real Interest Rates
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In early 1996, the short-term interest rate in France was 5.7 percent, and forecast French inflation was 2.8 percent. At the same time, the short-term German interest rate was 2.6 percent and forecast German inflation was 1.6 percent.
What were the real interest rates in France and Germany? Why are they different?
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Solution Summary
This solution gives equations for finding interest rates.
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The real interest rate = ((1+n )/(1+i))-1
where n= nominal interest rate and i= inflation
Real ...
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