If those who believe we are in a period of secular stagnation are right and equilibrium interest rates
have fallen far, we could "see rising interest rates slow the economy considerably, and the Federal Reserve will find itself unable to raise rates as much as it is planning to.
Such developments could push up real equilibrium interest rates
Globally, structural measures can create the conditions for equilibrium interest rates
to rise once more.
For example, for the figure 1 parameters, faced with the pooling equilibrium interest rates
, unconstrained Type Bs would borrow about 30 percent more.
Recall that the equilibrium interest rates
on loans under perfect information can be written as:
Furthermore, in the same way as a tax on credit, credit frictions impact equilibrium interest rates
, which also impact agents who are not subject to the underlying commitment or informational problems.
Then, if a deadweight cost is introduced into external finance, the equilibrium interest rates
must fall to allow the firms to break even--otherwise, no firm would be willing to raise external finance.
Equilibrium interest rates
respond to changes in the public's asset demands and supplies caused by changes in exogenous variables such as nominal income or the [Eta] and [Omega] shocks.
asset supply caused by the subprime crisis should lower equilibrium interest rates
and trigger a rebalancing away from now-"toxic" U.
These two inequalities ensure that the equilibrium interest rates
do not exceed project maximum yield and that we do not deal with a corner solution.
To answer specific questions about the behavior of exchange rates, we obtain closed-form solutions for agents' demand functions, equilibrium interest rates
, and the equilibrium exchange rate.
The equilibrium interest rates
and equity prices for the case [alpha] = 4 are shown in the top two panels of figure 4 as functions of the index i of the population pyramid [[DELTA].