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asked ago in General Economics Questions by (120 points)
Say you need a simple estimation of a real interest rate. You have a monthly annual rate of a generic bond and the CPI index (non-seasonally adjusted), so then you would: a) Calculate the annual inflation rate, and do: (1+i_t)/(1+pi_t)-1; b) Calculate the annual inflation rate, take the average of the last X months, and do: and do: (1+i_t)/(1+av.pi_t)-1; c) Calculate the annual inflation rate, take the average of the next X months, and do: (1+i_t)/(1+av.pi_t)-1; d) Nah, all of these are wrong! I would... (please comment)

1 Answer

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answered ago by (2.3k points)
(k-g)/(1+g)

k = interest rate
g = inflation

I would use average inflation rate but I'm not very sure about what's better.
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