Can anyone explain the logic behind this – All else equal, an increase in New Zealand’s inflation rate will decrease its real interest rate.
Wouldn’t an increase in inflation increase both the nominal and real interest rate?
N = I + R
If you increase I, what happens to N? What happens to R?
Forgot that - thank you
Wouldn’t an increase in inflation increase nominal interest rate but no change with real interest rate?
Eventually, demand for money will decrease as the nominal rate increases, adding pressure to reduce the real rate.
Thanks. This one is really explainning everyone’s doubt.