Equilibrium rate of interest

(redirected from Equilibrium Interest Rates)

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.
References in periodicals archive ?
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.
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].

Full browser ?