A
Aishwarya Khandelwal
Member
"Real interest rates are probably more important than nominal interest rates. Investors expecting high inflation may also expect the government to increase real interest rates in response." I am not able to get my head around why this would be the case.
In one of the previous chapters it is stated that-
Nominal yield = risk free yield + expected inflation + inflation risk premium
So why government would increase real interest rates to counter high inflation?
In one of the previous chapters it is stated that-
Nominal yield = risk free yield + expected inflation + inflation risk premium
So why government would increase real interest rates to counter high inflation?