Nominal rates minus expected rate of inflation equals the real interest rate. I've plotted countries using data from The Economist. Several countries have negative real rates. Who's going to lend money when they earn a negative return?
Flad- maybe this is a stupid question but I don't really understand what a negative interest rate does. What are some of the effects on the countries who have a negative interest rate. Also, when you have the lecture from today published let me know where I can check it out. thanks
So this is an example from our notes today on the Loanable Funds Market right? So if the real interest rate is negative then the expected inflation rate has to be greater than the nominal interest rate.. so the countries w/ negative real interest rates have more demand for quantity loans funded? Post back and let me know if I'm on the right track :)
Good thinking Em...here's my thought...in any transaction there's two parties...in this case a lendor and a debtor...i think it would be true that the person wanting to borrow money would demand more loanable funds at a lower interest rate, but with low real interest rates no one would want to make the loan...i think that's what is clogging up the credit system right now is that banks don't want to loan money because the real return is low...i'd be interested to discuss more of this...
Flad- maybe this is a stupid question but I don't really understand what a negative interest rate does. What are some of the effects on the countries who have a negative interest rate. Also, when you have the lecture from today published let me know where I can check it out. thanks
ReplyDeleteSo this is an example from our notes today on the Loanable Funds Market right? So if the real interest rate is negative then the expected inflation rate has to be greater than the nominal interest rate.. so the countries w/ negative real interest rates have more demand for quantity loans funded? Post back and let me know if I'm on the right track :)
ReplyDeleteGood thinking Em...here's my thought...in any transaction there's two parties...in this case a lendor and a debtor...i think it would be true that the person wanting to borrow money would demand more loanable funds at a lower interest rate, but with low real interest rates no one would want to make the loan...i think that's what is clogging up the credit system right now is that banks don't want to loan money because the real return is low...i'd be interested to discuss more of this...
ReplyDelete