The expected real rate of interest is 0.6%, actual inflation over the last year was 3%,...
The expected real rate of interest is 0.6%, actual inflation over the last year was 3%, and expected inflation over the next year is 7.4%. What is the current level of nominal interest rates (in %) predicted by the Fisher equation? Round to 0.01%. E.g., if your answer is 3.145%, record it as 3.15.
Homework Answers
As per the Fisher equation
(1+r) = (1+R)/ (1+h) where r = real rate
R= nominal rate
h= Inflation
(1+0.006)= (1+R)/ (1+0.03)
(1+R) = 1.006*1.03
=1.0362
R= Nominal rate = 3.62%
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