In the data from the text, we observe that countries with high inflation rates tend to...

In the data from the text, we observe that countries with high inflation rates tend to
have high nominal interest rates. What does this imply, if anything, about real interest
rates in countries with very high inflation rates?

Expert Solution

Generally though, real rates are constant. But we cannot infer anything about real interest rates specifically as real interest rates=nominal rates-inflation rate

So, it can so happen that the increase in nominal rates offset the inflation rate keeping the real rate unchanged. Or it could happen that one increased more than the other. In that case, it is difficult to comment about real rates as the dominating variable would determine the direction of real rates.

jeff jeffy answered 2 years ago

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