Abstract
Interest rates are the price that has to be paid by a borrower of money to a lender of money in return for the use of the funds. The rate of interest is a crucial economic variable which will affect the amount of consumption, saving and investment in an economy. The interest rate is a crucial part of the formula for pricing other financial assets such as forwards, futures, options and swaps, and for this reason a proper understanding of the factors that can cause interest rate changes is crucial to the study of financial markets.
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Further reading
Walsh, C. (2003) Monetary Theory and Policy 2nd edn, MIT Press.
Woodford, M. (2003) Interest and Prices: Foundations of a Theory of Monetary Policy Princeton University Press.
Chapter 4: Monetary Policy and Interest Rate Determination
Culbertson, J.M. (1957) ‘The Term Structure of Interest Rates’, Quarterly Journal of Economics, November, pp. 489–504.
Modigliani, F. and Sutch, R. (1966) ‘Innovations in Interest Rate Policy’, American Economic Review, May, pp. 178–97.
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© 2005 Keith Pilbeam
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Pilbeam, K. (2005). Monetary Policy and Interest Rate Determination. In: Finance and Financial Markets. Palgrave, London. https://doi.org/10.1007/978-1-349-26273-1_4
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DOI: https://doi.org/10.1007/978-1-349-26273-1_4
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