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The dynamic he's describing is about inflation relative to its expected value at the time of the deal. If you expect inflation to avg X% over the course of the
by wutbrodo 8y ago
The dynamic he's describing is about inflation relative to its expected value at the time of the deal. If you expect inflation to avg X% over the course of the loan and it ends up being so, then it's factored into the nominal rate of the loan and neither of the situations he describes come to pass. It's also mainly applicable for fixed rate loans only. So yea, it's pretty reductive.
- notahacker 8y agoAnd today's monetary policy is focused targeting predictable inflation rates over a period of time, which actually makes estimating it for credit purposes much more predictable than in the gold standard era, when it was zero with massive variance