In late December 1990, one-year German Treasury bills yielded 9.1%, whereas one-year U.S. Treasury bills yielded 6.9%. At the same time, the inflation rate during 1990 was 6.3% in the United States, double the German rate of 3.1%.
a. Are these inflation and interest rates consistent with the Fisher effect? Explain.
b. What might explain this difference in interest rates between the United States and Germany?