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.
478
questions
0
votes
0
answers
21
views
Why Central Banks didn't Use Raising Compulsory Deposit Rates More as Tool to Cool off The Economy instead of raising rates?
Community!
As sovereign debt raises worldwide even amid rising inflation, I wonder why I've never seem some action in the sense of raising compulsory deposit rates at the bank to shrink lending and ...
1
vote
0
answers
50
views
Log Linearization for Interest Rate in Real Business Cycle (RBC) Model
Under the baseline real-business-cycle model specification in Romer's Advanced Macro, we are provided with the following formula for the real interest rate in period $t$:
$$r_{t}=\alpha\left(\frac{A_{...
- 45
0
votes
0
answers
26
views
What's a good textbook reference for interest rate models / term structure modelling?
There is a huge literature modelling the yield curve. For instance, the affine term structure literature, both in continuous and in discrete time, has many models with different factors, models that ...
0
votes
0
answers
25
views
Economics of Christmas Trees and Interest Rates
True/False: If Christmas tree growers harvest and market their trees at earlier ages, one possible explanation is that interest rates have fallen.
My Intuition is that the interest rate represents ...
- 1
0
votes
0
answers
27
views
What is the intuition behind price level determinacy in cashless and frictionless economy with Taylor-type interest rate rule?
Following Gali's Monetary Policy, Inflation, and the Business Cycle (2nd edition) chapter 2:
Frictionless + cashless economy set up and log-linearised.
We have:
Fisher Equation (with real rate ...
0
votes
0
answers
41
views
Savings when money market is in equilibrium (LM curve in IS-LM model)
When the money market is in equilibrium, supply of real money balances is equal to the money people hold in hand as liquidity, right? Which means entire real money balance is at hand as liquidity (...
- 101
2
votes
2
answers
349
views
MMT suggests that taxation can be used to fight inflation. What would be an argument against this suggestion?
Yesterday, I watched the MMT documentary Finding the Money. Modern monetary theory (MMT) provides an alternative viewpoint that sounds to me consistent with standard economic theory. Deficit spending ...
- 211
3
votes
0
answers
50
views
Optimal monetary policy in IS-MR-PC model
I am trying to work out a formal solution for the central banks' problem in the slightly modified IS-MR-PC model (popularized by Carlin & Soskice (2015) and Carlin & Soskice (2023) textbooks).
...
0
votes
2
answers
63
views
Bond Prices, Interest rates, Demand for bonds
I know about the inverse relationship between bond prices and interest rates. However, when we talk about Liquidity Preference Theory, there we mention that an increase in interest rates leads to more ...
- 63
0
votes
0
answers
48
views
Chan Park - Fundamentals of Engineering economics - 1st edition - Chapter 5 - Present value - 5.8
hope I could ask some help around here. I'm working with Chan S Park book Fundamentals of Engineering Economics, 1st edition. I'm in the problem 5.8, page 171. Which states:
``Your firm is considering ...
0
votes
1
answer
43
views
How do Fiscal and Monetary policy interact intuitively?
Suppose there is a recession, and the government aims to provide a fiscal stimulus. Assuming an independent CB, the government will issue treasury bills to borrow and finance the stimulus. Consider ...
- 103
2
votes
0
answers
13
views
Spanish Interest Rates pre-1973
Does anyone know where I can find data on any Spanish interest rates (legal, interbank, t-bill, money market etc.) pre-1973? Bank of Spain, IMF, World Bank, and FRED seem to only go back to 1973 at ...
- 21
0
votes
1
answer
65
views
If high interest rates cause strong currencies what do Argentina and Zimbabwe have currency collapse?
These two countries like Argentina have massive interest rate, over 50%, yet nobody can claim the argentinian peso is stronger. In fact its like 1000 to the dollar and was much stronger before. So do ...
2
votes
1
answer
37
views
Does the discounted dividend model assume a stock underperforms the risk-free rate?
I'm trying to understand intuitively why the stock market as a whole has outperforms the risk-free rate over time. I started by looking at the discounted dividend model which is one of the few things ...
- 21
0
votes
1
answer
71
views
Duration - why do we measure it the way we do?
Let B(y) be the bond price as a function of yield to maturity. If I understood correctly, duration can (roughly) be understood as a measure of the change in $B in response to a change in y. What I don'...
- 109
0
votes
0
answers
76
views
Finding the equilibrium interest rate
Let's say there are only two countries in the entire world, Argentina and Chile, and there is free trade between them. The aggregated investments in both countries are $I^A$ and $I^C$ that are both ...
1
vote
1
answer
65
views
How to model discontinuities in sovereign debt interest rates?
For some emerging economies, the interest rates on sovereign debt are sometimes highly volatile: undergoing periods of stability then sharp upward/downward jumps.
In continuous-time models, however, ...
- 11
-4
votes
1
answer
705
views
Money creation - why do we need deposits and why do banks give out money? [duplicate]
Currently studying elementary economics but there's this one concept that I'm struggling to wrap my head around at the moment: money creation.
The way I understand it, banks can create money "out ...
- 109
0
votes
0
answers
43
views
Why is eurodollar future so popular
It's well-know that eurodollar futures contracts are the most liquid contracts in the world. Traders use them to express views on interest rates or hedge interest rate risks.
My questions is why are ...
- 163
0
votes
1
answer
59
views
General mechanism of bond price and real interest rate movements
Jeremy Siegel writes in "Stocks for the long run" that when better than expected economic data is released bond prices fall and real interest rates go up.
Why do bond prices fall with ...
- 101
0
votes
0
answers
33
views
Calculating the value of this asset
calculate the cash value of a financed asset that is paid in the following way: an initial payment of 500,000, in month 2 a payment equal to half its value, in month 7 a payment equal to a third of ...
0
votes
1
answer
86
views
Future value of a "future" investment
Consider the following well-known simple exercise :
You have a loan outstanding. It requires making three annual payments
at the end of the next three years of $1,000 each. Your bank has
offered to ...
- 119
0
votes
1
answer
70
views
Does monetary policy render mathematical models for short-rates nearly useless?
Note: please do note that I am a tech person with no economics background.
I've been studying short-rate models so much for interview purposes and finally took a step out of the weeds to think about ...
- 101
2
votes
2
answers
74
views
What is the argument that suggests to the Federal Reserve that it is reasonable to cause a recession in order to prevent inflation?
The current risk of recession appears to be caused solely by the Federal Reserve's refusal to stop raising interest rates.
When making this decision, the FRB seems focused solely on the risk of ...
- 211
0
votes
1
answer
213
views
Interest rates vs consumption tax brackets
I know only a little bit about economics, but I have been puzzled why interest rates should be used to combat inflation where direct solutions exist.
I have some trouble understanding why interest ...
- 103
1
vote
1
answer
67
views
Can you change monthly monetary shocks into quarterly ones?
There are now many series deriving monetary shocks at high frequency, e.g., Jarocinski-Karadi (AEJ:M, 2020), Bauer-Swanson (NBER MA, 2023).
These typically come at a monthly frequency. However my ...
- 361
-1
votes
1
answer
169
views
Relationship between bonds and interest rates
I read the following sentences from the book about the bond and interest rate.
First explanation goes like this:
When bond traders talk about yield they are usually referring to the YTM [Yield to ...
- 45
-1
votes
0
answers
8
views
Does the ECB issue staff projections for its own interest rates, as the Fed does?
I can see that it has a 'projections' segment here:
ECB staff forecast
But it seems to take market rates as reference.
0
votes
1
answer
165
views
What is a European Bond and how is its Yield Calculated?
I've become a bit confused at the concept of a European(or Eurozone) Bond. I can't seem to understand if this is just a weighted average of all the EuroZone countries government bond yields or if this ...
- 43
0
votes
1
answer
76
views
Why people buy foreign bonds when foreign interest rate raises?
I'm reading Investopedia's How National Interest Rates Affect Currency Values and Exchange Rates to understand how interest rates affect exchange rates.
It says:
Generally, higher interest rates ...
- 143
-1
votes
2
answers
187
views
Why did the Bank of England cut the base rate so low in 2009? And what didn't happen that made them keep it low until 2020?
I'm aware there was a financial crisis in 2008 and because of that crisis the BoE cut the base rate to very low. For example in 2008 the base rate was 5%, but by 2009 it was 0.5%.
But why did the BoE ...
- 174
0
votes
1
answer
420
views
How did interest rates work under the gold standard?
Say under the gold standard \$1=1 gold unit. And the interest rate is 10%. Does this mean if I deposit 1 dollar at the bank at the end I would end up with $1.1 which means in essence I would actually ...
- 43
0
votes
1
answer
23
views
How to calculate generated interests while having two different nominal rates compunded into a single quarter
I would like to calculate the interest generated from an investment within a time period of 8 months. The bank manages an interest rate of 3.5% p.a. for six months, and the last two months is 1%. The ...
2
votes
0
answers
42
views
How is natural interest rate estimated?
I'm working on a project in which I need to describe, compare and contrast various models of natural interest rate.
My team is planning to discuss the Laubach-Williams model, DSGE model, Structural ...
- 21
2
votes
1
answer
114
views
The effects of interest on supply and demand
It is clear to me that increasing the interest rate should make loaning money more expensive, therefore money more scarce, and that that would curb aggregate demand, and that's what I recall I learned....
- 121
-1
votes
0
answers
22
views
When Cathie Wood says the Powell has 20x rates vs Volker 2x rates in 1981, is this the right way to look at it?
Cathie Wood regularly says the FED today gone too far with rate rises, saying they have raised rates 20 times from their 0.25% lows in 2020, where as in the early 1980 Volcker only doubled rates from ...
-1
votes
0
answers
40
views
If interest rate policy were to disappear tomorrow, how would we/could we manage inflation?
Inflation has obviously become a big issue over the last couple of years again, and I've read people complaining that the inflation comes from increased prices of energy imports, (namely oil and gas), ...
- 1
-1
votes
0
answers
30
views
Relationship between Interest rate and commodity prices
In section 4 of this article
The Russian Rouble's spectacular crash Oil. Gas. Wheat. Iron. Cobalt.
Russia’s status as a commodity superpower, and the high yields this
can generate, has made the ...
- 99
2
votes
1
answer
90
views
China interest rates
"the PBoC said it would keep interest rates below the nominal GDP growth rate as a way of maintaining debt sustainability. But this only makes debt "sustainable" by implicitly ...
- 21
2
votes
1
answer
115
views
Empirical relation between interest rate and stock market performance
Disclaimer: Originally I asked this question on the personal finance site (see here) where it was (rightfully) closed since it does not directly relate to personal finance but is rather a general ...
- 21
1
vote
1
answer
44
views
If the interest rate is increased to limit inflation, doesn't that increase the money supply?
If the interest rate is increased to limit inflation, doesn't that increase the money supply? Because one year later, 5% of the total bond will need to be created and put into circulation.
This, in ...
- 111
0
votes
2
answers
63
views
How to find the equilibrium amount of $p_{2}$ in terms of $p_{1}$?
There are $100$ tons of crops remaining to supply for the two months. The crop holders consider whether to sell crops now or one month later. Holders face the demand curve of each period as below:
$...
1
vote
1
answer
93
views
Why raise UK interest rates to control inflation Now - May 2023?
The usual reason given for raising rates to control inflation is that it reduces consumer spending, increases borrowing costs and slows the economy.
However, in an environment where the inflation has ...
- 11
0
votes
1
answer
115
views
interest rate risk vs duration risk?
Is there a difference between interest rate risk vs duration risk? I feel as though I have heard them used interchangeably but I don't know if there is any distinguishing factor between the two.
-1
votes
0
answers
36
views
How to explain negative correlation betwen FED funds rate and dollar volatility?
actually I am looking into monthly price data on bitcoin and the us-dollar (USD/EUR) and the monthly federal funds rate.
I calculated the volatility by:
...
- 99
1
vote
0
answers
34
views
In a New Keynesian model, why do firms not take the interest rate into account when discounting their future profits?
I understand that firms usually discount future prices using the discount factor $M_t = \beta^t u'(c_t)$. Both the presence of $\beta$ and $u'(c_t)$ make sense to me as they reflect the (im)patience ...
2
votes
2
answers
342
views
What's wrong with a deflationary economy?
It is my understanding that central banks around the world strive to achieve a stable inflation rate of around 2%. It is claimed that this is because steady low inflation helps contribute to the ...
- 129
3
votes
1
answer
434
views
Why have bank deposits gone down with rising interest rates?
From an opinion piece in the Washington Post:
"Since the Federal Reserve began to raise rates about a year ago, deposits leaving the banking sector have totaled nearly $1 trillion".
Why ...
- 151
1
vote
2
answers
80
views
Why do sticky prices make output partly determined by demand?
First time going through the basic new-keynesian model and i understand the math behind it okay. I also get that output being partly demand determined is the transmission mechanism for monetary policy ...
- 11
1
vote
0
answers
61
views
Decreasing Policy Rates but Increasing Banking Rates on Loans
In Turkey, we have been experiencing a chronic problem: Inflation. Since first quarter of 2021 central bank has been decreasing the policy rate, which is related to a political situation. However, ...
