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What is Understanding Real Interest Rates about?

Real interest rates account for inflation and measure purchasing power rather than nominal dollars. The expected real interest rate is used for decision making as actual inflation is unknown. When actual inflation differs from expectations, realized real rates also differ - lower than expected inflation increases real rates while higher than expected inflation decreases them. Investors use inflation indexed securities and adjustable rate mortgages to avoid the risks of unexpected inflation.

Author

Mai Mai Varela

Language

EN