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Q. Nominal interest rate and expected inflation?
When we have inflation, we can't, of course, presume that expected inflation is zero. So real interest rate will no longer be equal to nominal interest rate and we should use R = r + pe. Expected inflation pe is exogenous (even though not essentially constant. In more advanced Keynesian models you would find numerous assumptions on how expectations are formed.
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Table below shows the descriptive statistics which have been condensed from the data sheet for the period 1987 Q4 to 2011 Q3. GDP (%) Real Exchan
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