Are Real and Nominal Interest Rates Identical in Monetary Policy Analysis?

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In the discussion about the Money Supply-Money Demand curve, the focus is on whether the equilibrium interest rate is the real or nominal interest rate and their implications for monetary policy evaluation. It is suggested that if monetary policy were effective, the real and nominal interest rates would be identical in shape, as constant inflation would maintain this relationship. However, concerns are raised about how changes in the money supply affect price levels, leading to fluctuations in nominal interest rates while real interest rates remain stable. This dynamic can distort the original curve when considering real versus nominal interest rates, highlighting the complexities in assessing monetary policy effectiveness.
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In the Money Supply-Money Demand curve, the equilibrium interest rate is the real or nominal interest rate?

Or are they the same thing for the purposes of evaluating monetary policy?

BiP
 
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If monetary policy worked (which it doesn't) then they should be identical (in shape not necessarily in value) as inflation should be constant.
 
John Creighto said:
If monetary policy worked (which it doesn't) then they should be identical (in shape not necessarily in value) as inflation should be constant.

I see. What confuses me is that even if the shape is the same for both of them, once you change the money supply then price levels change, and that causes nominal interest rate to change but not real interest rate, effectively distorting the original curve in the context of real vs nominal interest rates.

BiP
 
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