Which country has higher potential to raise interest rate?

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oem7110
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Which country has higher potential to raise interest rate?

Post by oem7110 » Sun Aug 14, 2011 12:05 pm

[CASE 1]
Country A:
GDP growth: 2%
Inflation rate: 5%

Country B:
GDP growth: 8%
Inflation rate: 5%

A or B?

[CASE 2]
Country A:
GDP growth: 5%
Inflation rate: 2%

Country B:
GDP growth: 5%
Inflation rate: 8%

A or B?

Does anyone have any suggestions on which country has higher potential to raise interest rate?
Thanks in advance for any suggestions

fab1usa1
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Post by fab1usa1 » Sun Aug 14, 2011 1:16 pm

OK, I'll bite. May I assume that inflation is measured consistently for each country (i.e. headline vs core)?

Answer: Country B in both cases.

CASE 1: Not a good idea to raise interest rates with weak GDP growth.
CASE 2: Inflation rate of 2% is rather sweet; why mess with it?

oem7110
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Post by oem7110 » Sun Aug 14, 2011 9:43 pm

fab1usa1 wrote:OK, I'll bite. May I assume that inflation is measured consistently for each country (i.e. headline vs core)?

Answer: Country B in both cases.

CASE 1: Not a good idea to raise interest rates with weak GDP growth.
CASE 2: Inflation rate of 2% is rather sweet; why mess with it?
For CASE 1, is there any general rule to determine what level of GDP growth is strong or weak?
For CASE 2, is there any general rule to determine what level of Inflation rate is high or low? furthermore, if GDP growth is over 10%, but inflation rate is still 2%, would interest rate still have less potential to be raise? no matter how high GDP growth is.

Thank everyone very much for any suggestions

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