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This is just a conceptual thought experiment. Is it possible that two countries have the same real interest rate, same GDP growth, but different inflation, one higher, one lower?

If that's possible, can we conclude that inflation can be high without negatively affecting the economy?

[EDIT] For example, financially, the country with higher inflation has a higher nominal rate, so money will just flow to that country? That will have consequences too? But that seems to be "rewarding" the high inflation?

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This is just a conceptual thought experiment. Is it possible that two countries have the same real interest rate, same GDP growth, but different inflation, one higher, one lower?

Yes it is possible. By Fisher equation inflation can be expressed as:

$$\pi\approx i-r $$

where $\pi$ is the inflation rate, $i$ nominal interest rate, $r$ real interest rate.

If both countries have real interest rate of 2% but country A has nominal rate of 5% it will have approximately 3% inflation and if country B has nominal interest rate 4% it will have approximately 2% inflation.

So it is possible to have the same real rate of interest and different rates of inflation at the same time.

When it comes to long term economic growth, the impact of inflation is non-linear. Small levels of inflation will not have negative effect on economic growth. Hence it would be possible to find example of two countries which both grow at lets say 2% and have the same real rates of interest, yet inflation in one country is 2% and in another 3%.

If that's possible, can we conclude that inflation can be high without negatively affecting the economy

No because effect of inflation on economy is non-linear. While low inflation might be desirable for an economy (see this older SE question and answers), high inflation will start having negative effect on an economy. Especially hyperinflations can be really devastating.

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  • $\begingroup$ financially, the country with higher inflation has a higher nominal rate, so money will just flow to that country? That will have consequences too? But that seems to be "rewarding" the high inflation? $\endgroup$ Jun 19, 2022 at 23:37
  • $\begingroup$ @CuriousMind if the money will flow into the country that would just move exchange rate between A and B to adjust in a way that any money flows will cease. $\endgroup$
    – 1muflon1
    Jun 20, 2022 at 0:01

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