Interest Rates 1: What are Interest Rates?

Abstract

This is the first in a series of seven papers on interest rates and it covers the basic terms and information required for a fuller understanding of the significance of interest rates: the instruments that interest rates apply to, the bank interest margin which plays an important transmission role in monetary policy, time value of money, types, relationship between rates and prices, and other relevant issues. The seven papers cover: (1) what are interest rates?; (2) relationship of interest rates; (3) composition of interest rates; (4) interest rate discovery; (5) bank liquidity & interest rate discovery; (6) role of interest rates; (7) an optimal rate of interest: the natural rate.

Keywords: Interest rates, money market, monetary policy, money, financial markets

JEL Classification: E40, E43, E44, E50, E51, E52, E58