nominal interest rate

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Nominal interest rate

The interest rate unadjusted for inflation.

Nominal Interest Rate

The interest rate on an investment or loan without adjusting for inflation. The nominal interest rate is simply the interest rate stated on the loan or investment agreement. If one makes a loan at a high nominal interest rate, this does not guarantee a real profit. For example, if the nominal interest rate on a loan is 7% and the inflation rate is 4%, the real interest rate is only 3%.

nominal interest rate

The stated rate of interest, exclusive of any compounding, that is paid on an investment. Annual interest of $80 on a $1,000 investment is a nominal rate of 8% whether the interest is paid in $20 quarterly installments, in $40 semiannual installments, or in an $80 annual payment. Use of nominal rates can be misleading when comparing returns from different investments. See also effective rate of interest.

nominal interest rate

the INTEREST RATE paid on a LOAN without making any adjustment for the effects of INFLATION. Contrast REAL INTEREST RATE.

nominal interest rate

The stated interest rate in a note, which may differ from the true (effective) interest rate because of discounting or fees.

References in periodicals archive ?
Growing confidence in economic expansion and falling unemployment has raised investors' expectation of future inflation, pulling up the nominal interest rate on ten-year bonds.
Krogstrup notes that some Central Banks need to continue to their use of unconventional policy instruments; for instance, the recent use of negative nominal interest rates could well be providing some degree of needed stimulus to their economies.
Figures 1 and 2 suggest that low nominal interest rates and low inflation may go hand in hand, at least over relatively long horizons in which the policy rate is kept at a constant level.
We have already seen that nominal interest rates might be highly misleading due to the effects of inflation.
One way to estimate the natural rate is to take the long-range federal funds rate projection of Federal Open Market Committee members as a measure of the long-term nominal interest rate, and subtract the Committee's inflation objective, since it is anchoring longer-run inflation expectations.
Kulish (2007) analyzed two roles (first, as a key determinant in the reaction function of the monetary authority; second, as instruments of policies) that long-term nominal interest rates can play in the conduct of the monetary policy.
The regression results indicate that, for the most part, Canadian nominal interest rates do not have any predictive ability vis-a-vis Canadian nominal stock returns.
In a market-based system, over long periods of time nominal interest rates are broadly in line with nominal GDP growth rates.
When nominal interest rates are near their zero lower bound (ZLB), as in many developed economies at the time of writing, it is theoretically untenable to apply the popular class of Gaussian affine term structure models (GATSMs) given their inherent material probabilities of negative interest rates.
This reflects the difference between real and nominal interest rates.
Its nominal interest rates will rise as bondholders fear inflation.
Also, 2013 is not likely to bring a significant improvement as positive factors—including a new governmental support program for first-time homebuyers, a more-relaxed regulatory environment, lower nominal interest rates, and higher affordability of real estate due to lower prices—are not expected to take full effect until 2014,” explains Marcin Mazurek, Director of Inteliace Research, a consulting company specializing in CEE financial-markets research.