Realzins

Realzins, or real interest rate, is the interest rate adjusted for inflation, reflecting the change in purchasing power of money over time. It represents the true return to a saver and the real cost of borrowing, independent of price level movements. In German-speaking economics, Realzins is the standard term for this concept.

Calculation and definitions: The real rate can be measured in two ways. Ex ante (before the fact) real rate is approximately r ≈ i − πe, where i is the nominal rate and πe is expected inflation. Ex post (after the fact) real rate is r ≈ i − π, using actual inflation π. A precise relation is given by the Fisher equation: (1 + i) = (1 + r)(1 + π). Solving gives r = (1 + i)/(1 + π) − 1 for the ex post rate.

Example: With a nominal rate of 5% and expected inflation of 2%, the ex ante real rate is about 3%. If inflation turns out to be 3% while the nominal rate remains 5%, the ex post real rate is (1.05)/(1.03) − 1 ≈ 1.94% (roughly 2% by the simple i − π approximation).

Significance and limitations: Real rates influence saving and investment decisions, as well as monetary policy. Low or negative real rates reduce the real cost of borrowing and can stimulate demand, while high real rates restrain it. Real rates depend on how inflation is measured (for example CPI or PCE) and on whether the rate is observed for a specific maturity. Ex ante and ex post measures can diverge due to inflation surprises, and risk, liquidity, and tax considerations can affect the usable 'real' rate for borrowers and lenders.

In sum, the Realzins captures the inflation-adjusted return or cost in financial decisions and macroeconomic policy, but its estimation depends on the chosen inflation measure and the timing of the assessment.