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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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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Do the principles of Islamic finance apply to central banking? [migrated]

Given the current situation in Turkey, I was wondering whether the principles of Islamic finance applied to central banking, as I thought they only applied to the retail banking sector, but President ...
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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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Simple description of how interest impacts inflation

I always was taught that inflation is impacted by interest like so: Lower interest rate => Loaning money is cheaper => More money in the system => Higher inflation However recently I am ...
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Why is return same as interest rate (yield) in the expectations theory?

My book (Financial Markets and Institutions, Mishkin et al.) treats returns and interest rates as the same thing while explaining the expectations theory in Chapter 5. However, in the previous chapter ...
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Who controls money supply if the fed does not?

This whitepaper states (bold mine): According to the consensus view, the two leading culprits of inflation risk today are the fiscal deficit and the money supply. To illustrate, take this CNBC ...
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How to calculate time preference?

Since I'm doing some research on interest rates and their determinants I've coming to read some "austrian" things about the rate of time preference. In order to investigate further about the ...
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Why is a stock market crash so bad?

Many folks speak about potential stock market crashes when central banks raise interest rates. I am not a graduate economist nor do I pretend to understand it, but I am definitely curious about what'...
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Forward Guidance affects interest rate?

Forward guidance affects the effective federal funds rate, right? as opposed to the overnight reverse repurchase/overnight loans, longer-term interest rates, or discount rate of loans from the Fed to ...
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How interest payment work in lending under bitcoin standard?

In Fiat Standard lending creates money. Whenever the debt is fully paid the monetary supply increases. What happens under bitcoin standard? Assume all the bitcoin has been mined and BTC has become the ...
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What causes rate transmission to be slow?

A recent quote from David Rosenburg on rate hike expectations reads: Remember, everything the Fed does in a moment of time has a peak impact on the economy 12 to 18 months later. Thus, raising rates ...
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Why do we have *daily* series of T-bill yields?

I understand that each week the US Treasury issues new T-bills at different maturities (1-month, 3-months, 1-year, etc). As far as I understand, this issuance happens every Tuesday. After the auction, ...
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Why would a country ever want high interest rates?

The way I understand it, the government of a country can do a lot to change the interest rate in their country. Low interest rates encourage taking out loans and spending, thus boosting the economy, ...
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Why does the federal funds rate differ from the IOR rate?

If I am not mistaken, the federal funds rate is the rate at which commercial banks, money market funds and market makers pay for overnight US Treasuries. In theory, it should be equal to the IOR rate, ...
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Question on notation

I need to write a couple of simple equations for a homework project. I wonder what the convention is with subscripts. I do not want to use Greek letters and keep it simple. I have a few variables such ...
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Do students for economics study theory about no-money-economies and about no-interest-economies (ancient or futuristic)?

Do students for economics study theory about no-money-economies and about no-interest-economies (interest-free-economies), may these be ancient or futuristic? Are these terms are even being introduced ...
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Why isn't the Federal Reserve interest rate set by a published algorithm?

The Federal Reserve sets the interest rate, presumably based on a number characteristics and trends in the economy: inflation, GDP growth, population growth, unemployment, housing prices, etc. However,...
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What are the causes of negative real interest rates?

I am familiar with the real interest rates equation which states that real interest rate = nominal interest rate - expected inflation rate. What I am failing to fully grasp, however, is why would ...
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Confusion regarding the definition of inflation premium

'Inflation premium' is defined here as the higher return that investors demand in exchange for investing in a long-term security, where inflation has a greater potential to reduce the real return. In ...
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51 views

Real interest rate confusing definition

I'm currently reading "Financial Markets and Institutions" by Cornett and Saunders. On the section on interest rates, the real interest rate is defined as: A real interest rate is the ...
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Does using different Analysis Methods give the same better alternative to choose between economic projects?

Will all analysis methods (PW-FW-AW-ROR-B/C) that we can use for determining project acceptability on an economic basis gives you the correct same-alternative for the same cash-flow always?
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How to convert non-annual interest rate to annual interest rate?

If a student makes monthly deposits of 1,200 into an account with a nominal annual interest rate of 4.5% compounded monthly, will he have enough after 5 years to purchase a $105,000 property in cash? ...
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Why are so many economists critical of central banks manipulating markets and creating artificial demand?

When demand for liquidity outstrips supply (rate increase in a credit crunch) then the law of supply states that quantity supplied also increases with price (rate decrease provided demand stays ...
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143 views

Did Capitalism and Adam Smith Support a Central Bank?

Does Adam Smith and Capitalism support a Central Bank/Federal Reserve? I am trying to read through the book "Wealth of Nations" to understand. Having a central/regulatory figure dictate ...
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impact of interest rate and benefits for IMF

We know that when interest rates are high, the economy slows and inflation decreases. when interest rates are low, the economy grows, and inflation increases. Now govt wants low inflation as it has to ...
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I am given an annual interest on my money. How do I calculate how much interest I earn daily?

If an institution is giving me an interest of 7% pa and the interest will be earned daily. How do I calculate how much do I earn per day? I tried it calculate like this: ...
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What is the relationship between interest rates and stock values

I have started reading the book After the music stopped and came across a section which I couldnt quite understand. This is the following passage the fundamental determinants of stock values are ...
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What effects the time value of money

My question regards the rationale behind the Present Value computation of a single cash flow received after $n$ periods, $CF_{n}$. Most textbooks make the following statement: $$PV =\frac{CF_{n}}{(1+x)...
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On different kinds of interest rates

I am currently reading Mishkin's Money Banking and Financial Markets and would appreciate some clarification on interest rates. There are several chapters that discuss interest rates and their ...
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How are sovereign bond interest rates determined?

They are a lot of questions about the price of a bond or its yield. Why do people buy negative interest rate bonds? How did Portugal draw down their interest rates on pubic debt? ... and so on Mine ...
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How come Fed doing RRP could push short term interest rates below 0?

So there is this Reuters article, saying that the amount of cash has peaked in Fed's RRP facility, meaning that it has entered the RRP market. It also claims that this could push short term interest ...
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Comparing rates of return for different assets using $V=Pe^{rT}$

I have been playing with $V=Pe^{rT}$ and have been thinking about how to apply it to situations involving different assets growing at different rates. Suppose I had data for the historic sale prices ...
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If prices stay the same, how's lending money the same as lending real goods?

I was watching American TV. They interviewed an economist from Ivy League university. He said It's called a real interest rate because if prices stay the same, lending money is the same as lending ...
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Are there any Sovereign Debt Guarantees, apart from those issued by the US?

The US has been undertaking an irregular form of foreign aid, Sovereign Bond Guarantees, which entails guaranteeing some of the public debt of their allies, source here: https://www.cgdev.org/blog/...
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How TLT is priced?

When FED rate rise bond prices go down because people are willing to buy new bonds with higher income. But does it work the same straight way for a bond ETF, ex. TLT? If someone sells one treasury ...
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Is there an equation for compounding interest while adding to the principle amount

supposed I invested \$5000 at 10 % per annum , but at the beginning of each year I add another \$5000. So I will have (\$5000 + \$500) + \$5000 = \$10500 at the beginning of the 2nd year and compound ...
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How is it not arbitrage that EURIBOR (EUR) is around -0.5% and LIBOR (USD) is around 0.5%?

Why can I not borrow $1B of EUR at EURIBOR (pays me 50bps per year), convert it to USD (also pays me 50bps per year), lend it out at LIBOR, and collect a 1% spread? Am I missing somethign obvious? ...
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Could the Feds objectives be adjusted to decrease or at least not increase wealth inequality?

The US congress "has assigned the Fed to conduct the nation’s monetary policy to support the goals of maximum employment, stable prices, and moderate long-term interest rates."(1) It seems ...
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62 views

Why does central banks lowering interest rate incentivize more borrowing?

I'm a layman trying to understand how the US monetary system works. I'm particularly interested in how the Federal Reserve can create inflation without printing new dollars and putting them in M1. My ...
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Is this formula correct (monthly payments for a loan over time charging compounded interest while decreasing principal)?

I'm trying to derive a formula that I can use to optimize payments for my student loans. I'm not sure if Economics.SE is the best place for this because it is pretty math based, but the problem I have ...
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What Interest Rate used to calculate opportunity cost?

What Interest Rate used to calculate opportunity cost (Calculating Future Value/Present Value)? Usually in the textbook it said that the rate used is government bonds interest rate(since it's risk ...
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Effects between price level and interest rate

I'm looking at the relationship between the price level and the interest rate in an economy. If the price level goes up, with fixed nominal money supply, the real money supply goes down, therefore, ...
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IS curve, interest rate and consumption

It is possible for the interest rate to affect the expenditure with consumption. An increase in the interest rate could, in principle, lead to increases in savings and, that way, to a decrease in ...
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Why is the Fed worried about short term interest rates going negative?

I refer to the following article: https://www.bloomberg.com/opinion/articles/2021-02-25/negative-interest-rates-could-be-trouble-unless-fed-acts, notably the following paragraph: Market observers ...
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Meaning of high bond yields [duplicate]

Lately, rising longer-maturity bond yields have been in the news. Many people write as though the rising yields show that "the market" believes that the Federal Reserve will raise interest ...
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52 views

Seemingly contradictory relationship between bond yields and economic growth?

I have a few seemingly contradictory ways of viewing the relationship between economic growth and bond yields: Reductions in FFR are largely induced by IOER. Since IOER and bonds are competing ...
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Risks asscoiated short term stimulus as interest rates approach zero

TL;DR Government interest rates are approaching zero. What are the risks to borrowing large sums in the current enviroment? Would inflation occur? Full Story I was recently reading an article about ...
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How does the treasury determine the rates of the bonds they sell?

My understanding is that price and yields are determined via supply and demand. How are the interest rates determined when the bonds are auctioned off?
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How can an economy pay for all the products it produces?

How can the totality of an economy pay for all the products it produces, if the initial amount of money in the system (before the profits on all of the products is realized) is less than the amount of ...

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