1. If expected inflation is 100% and the real required return is 5%, what should the nominal interest rate be according to the Fisher effect?
2. In early 1996, the short-term interest rate in France was 3.7% and forecast French inflation was 1.8%. At the same time, the short-term German interest rate was 2.6% and forecast German inflation was 1.6%.
a. Based on these figures, what were the real interest rates in France and Germany?
b. To what would you attribute any discrepancy in real rates between France and Germany?