What is interest rates generally in Macroeconomics?

Question

In Macroeconomics courses, the term 'interest rates' is often used without disambiguation between whether the interest rates if of the rate given in bank savings account / bonds or whether the rate is the interest rates in loans.

For example: Higher real interest rates in Country A attract Country B investors.

Now maybe, the higher interest rate is that given in A's Bonds, so B's investors buy these bonds.

Or, maybe, the higher interest rate is on loans, so B's investors like to give loans to people of A.

Probably, it is not mentioned because they are the same thing?? In both cases, you are still getting the interest rates from the A, in case 1, from A's government, in case 2, from A's people.

In general, if not mentioned what type of interest rate, what does it stand for or does the difference not matter?

Answer 1

The 101 macro model usually does not refer to a specific rate unless stated otherwise. It is supposed to be just a ‘prevailing’ interest rate. Some textbooks will state it’s the interest rate on government bonds but the basic macro models would work equally well with corporate bonds or bank loans. More advanced model will usually specify if they talk about bonds or other loans.

However, all interest rates are connected. Because of competition bank loan that is exactly the same as corporate bond should have exactly the same (implied) interest rate. This is because if borrowing via bonds would be cheaper no company would ever borrow directly from bank and vice versa.

Thus if you have some model where all loans are equally risky etc you can just lump bonds, and bank loans together. Simple 101 models are build to showcase basic economic logic, not to be actually estimated and fitted to real world data.