Nominal and real interest rates around the world
a. Can the nominal interest rate ever be negative? Explain.
b. Can the real interest rate ever be negative? Under what circumstances can it be negative? If so, why not just hold cash instead of bonds?
c. What are the effects of a negative real interest rate on borrowing and lending?
d. Find a recent issue of The Economist and look at the tables in the back (titled "Economic Indicators" and "Financial Indicators").
Use the three-month money market rate as the nominal interest rate and the most recent three month rate of change in consumer prices as the expected rate of inflation (both are in annual terms). Which countries have the lowest nominal interest rates? Which countries have the lowest real interest rates? Are these real interest rates close to being negative?