The Exogeneity of Interest Rates

Basil John Moore

Chapter 11 in Shaking the Invisible Hand, 2006, pp 238-258 from Palgrave Macmillan

Abstract: Abstract The interest rate is the price of credit expressed as a percentage: the price paid for a loan of one unit of money in the present in return for a promise to repay one unit of money plus interest one year in the future. Classical economists analyzed the factors determining interest rates as real forces underlying the supply and demand for loanable funds.1 They concluded that real interest rates were determined by the real forces behind the demand for investment and the supply of saving, conventionally summarized under the headings “productivity” and “thrift.” Nominal interest rates comprised this real rate plus an “inflation premium,” which reflected the expected future rate of inflation over the maturity of the particular security.

Keywords: Interest Rate; Monetary Policy; Central Bank; Inflation Rate; Money Supply (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1057/9780230512139_11

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