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.

Filter by
Sorted by
Tagged with
26
votes
6answers
20k views

Why aren't house prices included in CPI?

Swedens central bank recently lowered their prime rate to -0.25% from -0.10% in an effort to avoid deflation. At the same time, house and apartment prices are higher than ever, up 11% last 12 months,...
22
votes
4answers
4k views

Why do people buy negative interest rate bonds?

I get that people buy long term government bonds, because of how safe it is, and if there would be a recession the government would just print more money and could pay it back. But why would anyone ...
15
votes
5answers
2k views

How can banks pay interest to the central bank?

If the central bank is the only institution that can increase the monetary base (create both, digital and paper money), how can any institution that borrows from it (mostly banks) satisfy its interest ...
13
votes
2answers
4k views

Larry Summers on the causes of secular stagnation

In an influential speech on November 8, 2013 at the IMF Annual Research Conference, Larry Summers suggested that slow economic growth in the years following the 2007–2008 financial crisis might be due ...
11
votes
7answers
97k views

How interest rate affects currency

I am quite new to economics. I was reading about changes in interest rates and its effect on currency value. The fact is as interest rates increases, the currency value also increases and vice versa....
9
votes
4answers
2k views

Mortgage loans from foreign banks at lower interest rates

I had a thought - what if I live in a relatively poor country like let's say Russia and I would like to buy a house. In order to do that, I need to take a mortgage loan. In Russia however, interest ...
9
votes
2answers
316 views

Why is 10% the necessary upper bound for a negative interest rate?

Source: p 710, Economics, 3 Ed, 2014, by N G Mankiw, M P Taylor ... In that same article, Professor Mankiw recounted a discussion with one of his graduate students at Harvard about a scheme, put ...
9
votes
2answers
10k views

How can nominal interest rates be negative?

It used to be (and perhaps still is) standard to teach in economics classes that the nominal interest rate cannot possibly be negative. So why have some nominal interest rates gone negative? Quote ...
9
votes
3answers
273 views

Are low interest rates dangerous?

Interest rates keep dropping. In my country in northern Europe we now have negative interest rate - banks have to pay the central bank for lending it their money. I have two questions: Why are ...
8
votes
2answers
532 views

Consequences to lending and value of national currency from a negative interest rate and 140-year mortgages in Sweden

According to an article at Yahoo Finance, the Swedish central bank dropped its zero interest rate to -0.1 percent a couple of days ago (the article is dated to Thursday, February 12th, 2015). Now, ...
7
votes
3answers
207 views

Why should I get a bond with negative interest instead of having a bank deposit account either zero interest or positive interest

I don't get why central banks apply negative interest rates. They say that buy our bond and at the maturity, it will worth less than today. What is the policy outcome of such decision? Why an investor ...
7
votes
1answer
356 views

Why lower the deposit rate if it is already negative?

The European Central Bank (ECB) has been lowering the interest rate on its deposit facility, first to -0.1% in June 2014, then to -0.2% in September and eventually to -0.3% in December 2015. But what ...
7
votes
2answers
389 views

Why is the inverted yield curve a good predictor of impending economic recession?

The inverted yield curve has often been cited as a good predictor of impending economic recession. What are the reasons to explain why is it a good predictor? Is the inverted yield curve a cause or ...
6
votes
5answers
19k views

What is the difference between present value and face value?

What is the difference between present value and face value? When I search this question on Google is says they're the same in some cases and different in others. It says they are the same when the ...
6
votes
2answers
302 views

What is Negative Interest Rate?

I want to know about Negative Interest Rate. What it is? Is it good or bad? How it affects economy and thus general people? I have been reading these words a lot lately in business news...
6
votes
2answers
684 views

Why could interest rates go up if Brexit happens?

I was reading this article, George Osborne says Brexit would drive up mortgage rates: George Osborne has issued a stark warning that mortgage rates will rise if Britain leaves the European Union. ...
6
votes
2answers
2k views

Taylor Rule: Relationship between interest rate and inflation

Q. According to the Taylor Rule, what should the central bank do to stabilize the economy after an increase in oil price? My points: Increase in oil prices (1970's) raises the price of production ...
6
votes
3answers
209 views

What is Islamic Banking?

What is "Islamic banking," and how is it similar to and different from banking as it occurs in the U.S.? I have heard Shariah Law prohibits usury, the taking of interest on loans. How do Muslim ...
6
votes
3answers
577 views

Effect of a US Federal Reserve rate hike on the Dow Jones Industrial Average

There is speculation that the Federal Reserve of the United States will raise interest rates by 0.25% in the near future. What is the expected effect on the stock market if interest rates do rise by ...
5
votes
5answers
44k views

Why do Higher Interest Rates attract Foreign Investors?

I am reading the following Article at Investopedia which states Generally, higher interest rates increase the value of a given country's currency. The higher interest rates that can be earned ...
5
votes
3answers
2k views

intertemporal utility function usage : calculating consumption

I have encountered this a lot in my exams and can not seem to understand how to use these functions here is an easy exemple : A consumer who will only live 2 periods receives 1000€ in the first ...
5
votes
3answers
620 views

Are there two different meanings of the discount rate?

Today I suddenly became aware of how the term "discount rate" are frequently used in two different contexts: When people prefer to have something now rather than in the future. The reason is ...
5
votes
2answers
3k views

Is fisher equation a definition, identity? Or is it rather a very good estimate

So let us agree that the fisher equation is $1 + i = (1 + r)(1 + \pi).$ Is it a definiton or good estimate. Intuition tells me this make so much sense and almost qualify as an equation that must hold. ...
5
votes
2answers
188 views

How does the russian interest rate raise will defends the Ruble from devaluation?

This strategy (interest raise to minimize currency devaluation) is being adopted in countries like Brazil and Russia: Brazil interest rate http://www.tradingeconomics.com/brazil/interest-rate Russia ...
5
votes
1answer
118 views

How can the bond market be overvalued when the value of a bond is a function of interest rates?

I seem to have a major misconception in my understanding of the bond market and how interest rates and demand and supply influence valuation levels. I hope someone will be able to clarify. My ...
5
votes
1answer
366 views

Why does lowering interest rates transfer incomes from households to corporations?

In Financial Market, Public Policy, and the East Asian Miracle by Stiglitz and Uy (World Bank Research Observer, vol. 11, no.2, 1996), the authors state that: Lowering interest rates transfers ...
5
votes
2answers
371 views

Why are the Fed's goals often described as the “dual mandate” and not the “triple mandate”?

The Federal Reserve Act Section 2A states: The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit ...
5
votes
1answer
287 views

Yield and interest rate?

Are they the same thing? Is yield the annualized return rate? Why when yield rise, yearly return increases but price falls?
5
votes
2answers
79 views

British inflation up again, but crisis might come. What should the BoE do?

According to the latest ONS report, inflation is rising as a consequence of the (pre/post) Brexit devaluation. This graph about the Input PPI is pretty revealing (taken from here): Yet, with the risk ...
5
votes
4answers
2k views

Relationship between Real Interest Rate and Employment

The country of Kingsland is considering the introduction of a compulsory retirement saving scheme. Under this scheme all workers are required to save ten per cent of their annual wages and ...
5
votes
1answer
77 views

Do assets without rental income streams appreciate relative to assets with rental income streams?

In his book "The Armchair Economist", economist Steve Landsburg critiques an op-ed concerning the relative value of stocks and real estate: James K. Glassman wrote a piece in The New Republic to ...
4
votes
1answer
916 views

Cash and negative interest rates

Recently, I read an IMF blog on how the negative interest rate policy can be implemented feasibly here. I don't really understand what they are saying in this paragraph: When cash is available, ...
4
votes
5answers
1k views

How to borrow at risk free rate

When learning about derivatives, we learnt about risk-free hedges and portfolios. However, one of the concepts was about borrowing and lending at the risk free rate. Now, for lending it's as simple as ...
4
votes
5answers
216 views

Advanced economies tend to slide down to zero interest rates and stay there. Why? [closed]

Advanced economies (e.g., Japan, USA, Europe) tend to slide down to zero interest rates and stay there. Why? Are there any theories which explain this tendency?
4
votes
2answers
207 views

The Fed pays 1.50% interest on reserves; so why are interest rates so low?

Since 14th Dec 2017, the Federal Reserve Bank has paid 1.50% interest on excess reserves. So why do depositors' interest rates still remain so low? According to BankRate, across the US, the ...
4
votes
1answer
268 views

Why does falling global bond yields signal coming deflation?

This article suggests that, "Bond markets are signalling something very nasty coming down the road at us – an all encompassing, worldwide deflation. " I cannot understand why bond yields falling ...
4
votes
1answer
95 views

How penalties on repo fails work?

There are a couple of questions I have about imposing penalties on repo fails. Is the repo fail penalty imposed only on the seller of securities if it does not buy the securities back or also on the ...
4
votes
1answer
85 views

Why is an inverted yield curve NOT a good predictor for recessions except in the US?

I am trying to better understand the mechanism (if there is one) behind an inverted yield curve predicting - or causing, as some would argue - a recession. In order to do that, I'm trying to ...
4
votes
2answers
286 views

How does the central bank changing interest rates change interest rates in the commerical banking sector?

I understand that the federal reserve manipulates the federal fund rate in order to change interest rates in the wider banking sector. What I am struggling to understand is how the changing the ...
4
votes
2answers
5k views

Why is the money supply perfectly inelastic?

From my notes: We analyze the determination of the interest rate using a supply/demand model relating the interest rate (price of money) to the quantity of money. Since we assume: 1) no excess ...
4
votes
4answers
9k views

Why does the European Central Bank use the 5y5y rate to measure inflation

I cannot understand why the 5y5y swap rate measures inflation. I can see how the floating rate somewhat measures the rate of interest rates which are related to inflation. However I cannot understand ...
4
votes
2answers
248 views

Why are they raising interest rates in Brazil?

How does raising interest rates in Brazil (and Russia) help fight inflation and defend their currency? I understand that the basic model is that raising the rates is meant to encourage banks to lend ...
4
votes
2answers
755 views

Why does the Fed control interest rates?

The Fed more or less controls interest rates using open market operations, but why? Why are interests rate not controlled by supply and demand?
4
votes
1answer
189 views

Interest Rates and Inflation

According to the Fischer hypothesis, nominal interest rates increase with inflation, so that the underlying real interest rate is preserved. One might then expect that if a nation A has a higher ...
4
votes
1answer
52 views

Effect of change in discount rate on consumption — (Samuelson, 1958)

I was reading this paper by Paul Samuelson. I am puzzled by a bit on page 470, left column. Here he claims that $\frac{\partial C_3}{\partial R_{t+1}}>0$. Let me give a short description of what ...
4
votes
3answers
188 views

Does the current situation of excess reserve imply failure of QE?

Excess reserve @ Fed In the past it was assumed that excess reserves should be kept around 0 and banks should be lending to each other as much as they are borrowing. The central banks would correct ...
4
votes
1answer
14k views

What's the difference between gross fixed capital formation and gross private domestic investment?

Cited from Wikipedia, we know: Gross private domestic investment is the measure of physical investment used in computing GDP in the measurement of nations' economic activity. This is an important ...
4
votes
2answers
925 views

How would the risk premium and a simplified taylor rule change the MP curve?

Ok so we're given a monetary policy rule where $$R^{CB}_t-\bar r = \bar n \tilde Y \space where \space \bar n>0 $$ and $$R_t = R^{CB}_t+\bar p $$ Where $\bar p $ is risk premium $\bar n$ is ...
4
votes
2answers
105 views

Is it possible for a Central Bank to escape from a deflation trap by 'hiding' information?

I'm reading this book on macroeconomics. When determining the nominal interest rate, the Central Bank has in mind its real interest rate goal. By the Fisher Equation: $i_t=r_t+\pi^{E_{CB}}_{t+1}$, ...
4
votes
1answer
68 views

Do tax cuts to the rich lower interest rates?

The rationale for giving tax cuts to the income brackets is that this money is then invested in new businesses which increases jobs. If the saved money is being saved/invested instead of being spent,...

1
2 3 4 5
7