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Equilibrium Rate of Interest

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Equilibrium rate of interest
The interest rate that clears the market. Also called the trade-clearing interest rate.

Equilibrium Rate of Interest
In money markets, an interest rate at which the demand for money and supply of money are equal. When a central bank sets interest rates higher than the equilibrium rate, there is an excess supply of money, resulting in investors holding less money and putting more into bonds. This causes the price of bonds to rise, driving down the interest rate toward the equilibrium rate. The opposite occurs when interest rates are lower than the equilibrium rate: there is excess demand for money, causing investors to sell bonds to raise cash. This decreases the price of bonds, causing the interest rate to rise to the equilibrium point. Central banks can use the equilibrium rate of interest as a tool in determining the appropriate money supply.


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does nothing to alter either the asymptotically attained balanced growth equilibrium rate of interest .
More formally, under a junior dilution model, the court after aggregating the bidding schedules would confirm the plan with an equilibrium rate of interest I* equaling: I*= arg min B(I) [greater than or equal to] S(I) and simultaneously would execute the sale of S(I*) debt securities from seniors to juniors.
 
 
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