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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How exactly do Participatory Notes induce volatility into the economy?

I was reading up on participatory notes. Wikipedia defines these as "instruments issued by registered foreign institutional investors (FII) to overseas investors, who wish to invest in the Indian ...
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Decreasing Yield Curve: Infer expected future trend?

If the yield curve for zero coupon bonds is decreasing does it mean (in general) that investors are thinking that country's economy has gloomy future? Or unpredictable?
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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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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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Is the money market model based on assumption of no interest rate targeting on the part of the central bank?

This is quote from Gregory Mankiw's macroeconomics text about mechanism of formation of the interest rate in the money market model: How does the interest rate get to this equilibrium of money supply ...
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Estimating probability of Central Bank's interest rate changes

Recently, I came across this article, which offers a simple model for estimating the probabilities of interest rate cut/hike from a central bank. This is done by using market data, especially normal ...
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Equal Payment Series

The question is: A man is planning to retire in 20 years. Money can be deposited at 8%, compounded monthly. It is estimated that the future general inflation rate will be 3% compounded annually. What ...
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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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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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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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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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How do low interest rates negatively impact bank earnings?

A lot of Banks are focused on bread and butter lending to small businesses and consumers. Many of those are putting aside provisions for loan losses in the wake of the Covid-19 pandemic. Headlines ...
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Does the federal reserve create any type of deadweight/welfare loss?

In microeconomics, we learn that when a good is overproduced or under produced, there is a dead weight loss associated with it. It seems like the same concept would apply to macroeconomics, where the ...
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Does a rate hike by the Central Bank increase or decrease inflation?

Mainstream economic theory tells us that, in order to decrease inflation, the CB increases its rates so as to decrease loan creation which should decrease Aggregate Demand and thus lower inflation. ...
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When does the interest rate parity curve shift?

Given the IS LM IRP model, can somebody tell me the difference for when there is a movement along the IRP curve and when there is an actual shift in the IRP curve?
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Calculating the amount paid for a loan in today's dollars

So I was trying to figure out the amount paid for a loan in today's dollars using two different methods but they give me different results. I was hoping that someone could explain which method is ...
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Why do higher real interest rates increase land value?

I'm using this equation to calculate market value of land based on the levied land value tax: y = market land value x = land value tax r = real interest rate a = real time-independent land value i = ...
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Effect of risk premium on the money demand (LM curve)

In short, I'm having problems understanding the LM curve, as the explanation given by the picture is for me, the 4th row is counter intuitive. When risk premium increases it causes the interest rates ...
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Money Neutrality and Real Interest Rate

I learned from the Fischer Effect that Real Interest Rate = Nominal Interest Rate - Inflation Rate . But in today's class the professor told us that due to money neutrality, an increase in money ...
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Fisher Separation with negative interest rate

In class we discussed Fisher Separation which states that the investment decision is independent of the financing decision. The optimality conditions are that MRS = MRT = (1+i) (i = interest rate). ...
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negative interest rate lending ripple effects

I was attempt to describe the ramifications of negative interest rates across benchmarks. I can foresee the business practice changes amongst holders of government bonds, savings accounts, ...
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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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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 ...
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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 ...
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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, ...
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Expected vs actual inflation and the real debt burden

The real rate of return is given by: 1+r=(1+i)/(1+π) and it can easily be shown that: 1+r ≈ i-π+1 so that r ≈ i-π This can be used to calculate real rates of return, or equivalently the real debt ...
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What is the effect on shelter prices of raising interest rates?

In the UK, a rise in rates causes a rise in mortgage repayments. It can lead to landlords raising rents due to margin pressure, if their mortgage is not fixed or is close to the end of its fixed ...
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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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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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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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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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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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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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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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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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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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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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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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overnight index swaps OIS

I'm writing a paper where I am using expected federal funds rates at different horizons and wanted to use the OIS as a proxy for what the market expects the FFR to be post FOMC-meetings. However, I ...
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Free Sources of Implied Repo Rate Data?

Are there freely available historical data on implied repo rates? In quick review, what's an implied repo rate? In futures markets, the implied repo rate (also commonly called the IRR) is the rate of ...
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Stabilizing Property of a Taylor Rule

Considering the New Keynesian Model we have the Phillips curve and dynamic IS curve in log-linearized form with price shock $u^{\pi}$ and demand shock $u^{IS}$ :$$\pi_t=\beta E_t\pi_{t+1}+\kappa(y_t-...
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Why Does Deficit Spending Work Without a Liquidity Trap?

My understanding is that in a functioning economy, the financial market clears when the nominal interest rate is above zero. It is only when it reaches zero that a liquidity trap occurs and the ...
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China benchmark rates and Shibor relationship (chart)

I made the chart below for an assignment on People's Bank of China monetary policy during the financial crisis. The problem is that it got me very confused about the relationship between these ...
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Understanding annualized percentage rate of interest, real interest and nominal interest rate

I am having issues finding a solid example online that explains how the concepts surrounding the word interest relate to each other. I am after an example that presents a concise mathematical formula ...
Eduardo J. Sanchez's user avatar
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Interest rate, bond problem

I am trying to solve the following problem: Debtor issued a bond on 20 000€ (including interest rate) with maturity rate of 8 months and interest rate of 8% per annum. Month later, the creditor ...
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Relationship b/w consumption & increase in interest rate

Please help me clarify this- Case 1 - If interest rates increase then people will save more to reap the benefits and will cut down on their consumption(C) so Consumption will fall. Case 2 - Due to ...
Varun Singh's user avatar