Problem: 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%.
1) Based on these figures, what were the real interest rates in France and Germany?
2) To what would you attribute any discrepancy in real rates between France and Germany?