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# 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 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 ...
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### 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_{...
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### 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 ...
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### 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 ...
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### 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 ...
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### 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 (...
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### 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 ...
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### 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). ...
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### 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 ...
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### 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 ...
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### 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 ...
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### 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 ...
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### 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 ...
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### 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 ...
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### 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 ...
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### 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 ...
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### 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 ...
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### 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 ...
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### 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 ...
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### 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.
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### 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 ...
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### 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 ...
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### 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 ...
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### 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 ...
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### 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 ...
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### 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 ...
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### 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....
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### 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 ...
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### 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), ...
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### 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 ...
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### 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 ...
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### 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 ...
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### 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 ...
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### 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 ...
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### 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, ...