(Click on the graph to enlarge. The blue line is the value of the dollar in foreign exchange markets. The red line is the yield on five-year inflation-indexed bonds.) For those of you who teach macroeconomics, here is a question to spark class discussion.
You observe an economy sinking in recession. As this occurs, real interest rates are rising, and the currency is strengthening. What shock, or set of shocks, could have caused these events?
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