Continuing with the preceding problem, we can define short- and long-term real rates of interest. In all cases, the relevant real interest rate (annualized, that is, expressed in percent per year) is...

Continuing with the preceding problem, we can define short- and long-term real rates of interest. In all cases, the relevant real interest rate (annualized, that is, expressed in percent per year) is the annualized nominal interest rate at the maturity in question, less the annualized expected inflation rate over the period of the loan. Recall the evidence that relative PPP seems to hold better over long horizons than short ones. In that case, will international real interest differentials be larger at short than at long maturities? Explain your reasoning.