Abstract
This is the sixth in a series of seven papers on interest rates and it covers the various roles of interest rates: primary tool of monetary policy, bridge between present and future consumption, advancing consumption / investment with debt, interest rates’ inverse relationship with asset prices and the wealth effect, the role of interest rates in derivative instrument pricing, and interest rates’ role in foreign sector 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.
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