7. Suppose that countries are in a global recession and the expected inflation rate of country A is positive, while that

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7 Suppose That Countries Are In A Global Recession And The Expected Inflation Rate Of Country A Is Positive While That 1 (24.38 KiB) Viewed 27 times

7. Suppose that countries are in a global recession and the expected inflation rate of country A is positive, while that of country B is negative. If the Central Banks of both countries decide to decrease interest rates to zero (ZIRP: zero interest rate policy) what would be the consequences? Which one might go into the deflation spiral and what do you suggest for this country? Should it decrease to policy rate to negative? Why? Use the Fisher Equation. (10) Fisher Equation: r=i-n²