Questions tagged [interest-rate]

The proportion of an amount loaned which a lender charges as interest to the borrower, normally expressed as an annual percentage. The interest rate is typically determined by a combination of market forces and monetary policy.

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Why do stock returns seem to be uncorrelated with interest rate?

Since expected return of stock is risk-free rate plus risk premium, intuitively they should be correlated. Of course the size of risk premium is not constant, but it's hard to imagine why risk premium ...
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According to Minsky, why do interest rates rise as a boom continues?

In chapter 9 of Stabilizing an Unstable Economy, Hyman Minsky says that The instability of a financial regime heavily weighted by speculative and Ponzi finance is due to the impact of changing ...
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Why are the yields on short-term bonds more volatile than those of long-term bonds?

Why do short term bonds have higher yield volatility but lower price volatility? I believe because of what we call duration prices of long terms bonds are more volatile. But what does yield volatility ...
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Significance of yield spreads in highly liquid environment?

I've come across this chart from a few months ago and am unable to trace down its origins. But I would like to think I should be able to decipher it even without the authors whispering in my ear. So ...
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Why Increase in Money Supply Reduces Interest Rate in Money Market?

I understand the fact the Increase in Money Supply reduces the interest rate in Money Market. But these two explanations are confusing me a lot. I'm not able to understand which is correct. Reason 1 ...
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Deriving Vertical LM Curve from Money Demand Curve

The statement "If money demand does not depend on the interest rate, the LM curve is vertical" is correct. Now, If money demand does not depend on the interest rate , then it means, ...
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Are interest rate hikes regressive?

Central banks are currently hiking interest rates to reduce aggregate demand. How is this reduction in spending distributed across the population? Specifically, what would be the shape of a graph of ...
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Treasury yield data

Interest rates on treasury.gov This treasury.gov page lists the treasury security interest rates: Interest rates on FRED Graphs for each of the above treasury securities are also on FRED: https://...
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How can the Euribor 1-week rate be less than the ECB deposit rate?

Here is my understanding: The European Central Bank (ECB) deposit rate is the interest rate the ECB gives a bank for holding a deposit with them. Currently this rate is -0.5%. Which means that it ...
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Money-market model: Income rises, bond prices fall. But if income rises, saving increases — in bonds. So why does rising income lower bond prices?

According to the money market model that determines the equilibrium interest rate at which the demand for money in the economy equals the supply of money: when the money demand curve shifts right for ...
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How do mortgage lenders set interest rates?

I'm trying to understand the factors that determine the interest rates that mortgage lenders offer borrowers. My understanding is that rates are determined based on the lender's cost of funds and the ...
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Is is possible that two economies have the same real interest rate, same GDP growth, but different inflations?

This is just a conceptual thought experiment. Is it possible that two countries have the same real interest rate, same GDP growth, but different inflation, one higher, one lower? If that's possible, ...
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Can a recession caused by drastic increases in the official interest rates be good for the economy in the long run?

Most of you are probably aware that a lot of the countries are increasing their official interest rates in order to fight inflation. Interest is an expense for the companies and individuals, thus an ...
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Why does the dollar seem weak?

2:00 (GMT+8) - The FED raised interest rates at 0.75-percentage-point (75 basis points I believe, not sure with terminology but definitely now at 1.75%). But even so, why does the USD seem weaker? I ...
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Chain effects when Money Demand is greater than Money Supply

Here is an example graph of Money Market Equilibrium The chain effects when interest rate is 8% are : Excess Demand for Money => So, People would sell Bonds => Bond Prices goes Down => ...
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Is supply-caused inflation different from demand-caused inflation

I've heard numerous times that the current inflation problem is caused by supply-side issues including supply chain disruption, lower productivity from fewer people working, impacts from trade ...
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The Fed's repo amount and TGCR shows positive pearson correlation. How so?

If I understand correctly, repo (https://fred.stlouisfed.org/series/RPONTSYD#0) → easier to borrow and the interest rate decreases → Tri-Party General Collateral Rate (TGCR) decreases → monetary ...
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Why is there increased speculation that America might go into a recession ? If they do will the rest of the world also face downturn?

Recently there has been increasing speculation regarding USA going into recession (since rate hikes can cause recessions): https://www.washingtonpost.com/business/2022/05/19/recession-economy-markets/ ...
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How does buying bonds decrease interest rate?

I am trying to understand how interest rates are influenced by central banks purchasing government bonds. When Googling "how does buying bonds increase interest rate" I find the following: ...
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Savings = Investment. High interest rates stifle investment. High interest rate encourage savings. Isn't this a contradiction?

If savings = investment, then by definition, higher interest rates encourage savings and hence more investment. But when it comes to monetary policy, central banks increase interest rates in order to ...
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Market price of interest rate risk under the CIR model

My goal is to find the market price of risk associated with the interest rate under the CIR model whose stochastic differential equation under the physical measure is given: \begin{eqnarray}\label{...
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Interest rate increase and levered portfolio rebalancing

Joseph Wang (“Fed Guy”) in the following podcast gives the following argument to question whether the markets can handle the Fed hiking to 3-4%: What happens if you are a high levered fund and you ...
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How much of Australian inflation is demand driven or supply driven?

For the Aussies who have been keeping track with the current inflation rate at 5.1% we have seen the policy response by the RBA increasing the cash rate by 25 basis points so its now at 0.35%. This is ...
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Inverse relationship of deposit volume to deposit rate and exchange rate of deposit currency

I have data on short-term (2 months) deposits, which show an inverse relationship between the volume of deposit replenishment to the deposit rate and the exchange rate of the deposit currency. We can ...
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How would an Income Tax Cut affect Money Supply and/or Money Demand in a Country in a Recession with Falling Price Levels

How would an Income Tax Cut affect Money Supply and/or Money Demand in a Country in a Recession with Falling Price Levels. How would Interest Rates be affected and what affects would the change in ...
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progressive interest rate

I have a product for which the fee is dependent on the proportion of the total that is purchased. The function is Rate = Rate + Withdrawn Capital / Total Capital in ...
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Why don't both Supply and Demand Curve Shift in Loanable Funds Market in Case of Gov't Deficit/Surplus?

Here it is written: But that doesn’t mean both curves shift? Supply and demand do not have the same determinants in any market. Your graphical model should reflect only one point of view. I don't ...
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Is the following information related to interest rates, and the Federal Reserve accurate?

There are actually two interest rates that are directly affected by the Fed. The Federal Funds Rate is the interest rate banks charge other banks who borrow funds to meet reserve requirements. If that ...
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Does the Fed Change the Discount Rate in Monetary Policy?

Here, it's given that: The first tool used by the Fed, as well as central banks around the world, is the manipulation of short-term interest rates. Put simply, this practice involves raising/lowering ...
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What is interest rates generally in Macroeconomics?

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 ...
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Why has the market got it so consistently wrong about interest rate rises

I have seen this graph (or similar) in several places. It shows how the market has consistently and incorrectly predicted interest rates will rise back to normal levels. With the benefit of hindsight, ...
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Impact of contractionary monetary policy and IS-LM curve shifts

Using the IS-LM diagram, show the impact of a contractionary monetary policy for a country when: (a) it does not affect expectations about future interest rates and output (b) it affects expectations ...
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Loans that don't have to be paid back (only the interest)

A normal loan has to be paid back with interest. Every now and then there are interest-free loans where only the loan has to be paid back but no interest, e.g. among relatives or friends, but also as ...
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How does R-policy affect bearish market?

I would like to ask what will happen if the central bank decides to adopt R-policy for three different scenarios: Loss of consumer confidence - i.e., consumer pessimism Loss of investor confidence - ...
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Interest and Installment

Suppose that a sum of x (in dollars) is being repaid by n equal yearly installments at a fixed yearly ...
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The Fed and Raising Interest Rates

Recently the Federal Reserve raised interest rates by 0.25%. It seems to me that in the modern era there is no reason to pick a round number like 0.25%. It also seems to me that they could / should ...
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What is federal reserve interest rate?

This is part of an article: the causes are not the same and the Federal Reserve Bank may not achieve the desired results by increasing interest rates, What does it mean? What interest rates can ...
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National consumption regression with inflation and interest rate controls

I'm trying to test the relationship (only in cross-section - not with time series data) between national consumption and the fragile state index and my project advisor suggested I include inflation ...
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Are fixed rate mortgages better in periods of low interest?

Conventional wisdom is to lock in a low rate (by getting a fixed-rate mortgage instead of ARM) while we're in a period of historically low interest rates. Assuming that you are going to own a house ...
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What is the specific aim of the Russian Central Bank's decision to hike key interest rate during the Ukraine invasion?

The Russian Central Bank raised their key interest rate to 20% in the midst of economic sanctions in response to the invasion of Ukraine. In the United States, the key interest rate, as far as I ...
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Will the freezing of Russia's foreign exchange reserves force China to decrease its massive Western currency reserves?

China has build up a massive foreign exchange reserve (excluding gold) of 3.2 trillion USD (FRED, Nov 2021). By the end of 2014, 58% of this were held in US dollars, according China's State ...
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How much money is, on average, "on loan" from the Fed?

The Fed maintains its target interest rates by "lending" money to commercial banks: When the actual federal funds rate is higher than the target, the Federal Reserve Bank of New York will ...
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What are the standard models of monetary theory?

I am currently conducting research on a digital economy which has recently faced inflation issues and thus implemented monetary policy to tackle them. My paper seeks to compare how real life digital ...
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Is there a scenario where investment and interest rates could both be increasing

Is there a scenario where investment and interest rates could both be increasing? I know that lower interest rates lead to increase borrowing and thus increased investment spending. So there is ...
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3 votes
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Steady-state savings rate

I'm having trouble with the steady-state savings rate type of problems. Here is the problem I'm stuck on: The production is $Y = 0.5*K^{1/3}(AN)^{2/3}$. If savings is $s$%, what are the steady-state ...
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Are there people taking variable loans with low interests rate?

When you are taking a loan your bank will give you to option to have a variable or fixed loan. A variable loan means that you'll have to pay back the parts of your loan with the interest percentage ...
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Global saving glut and the the level of interest rates

It is widely discussed that the "global saving glut" increases global money supply and so reduces it's price (interest rates) and pushes up the asset prices. It sounds very logical. However, ...
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Data on historical, cross-country nominal and real yield curves

Various central banks publish their fitted nominal yield curve estimates: the Fed, BOE, SNB, BOC, ECB (cf: Bundesbank), RBA, Russia, RBI. (I couldn't find for BOJ; Brazil; BOK; or PBOC. Links for ...
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What are the consequences of an increase in interest rates for States?

As the inflation is high, central banks such as the FED and the ECB are about to raise their rates. One of the consequence is that the stock market is falling and in particular companies having a lot ...
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Why did Greenspan think rate hikes would increase treasury term premiums?

Greenspan once called long-term treasury yield's continued downtrend despite his multiple rate hikes a "conundrum." The Fed has research on what is often called "Greenspan's Bond Yield ...
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