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If the true value of the project is only known to the borrower, the lender must incur a monitoring or auditing cost in order to reveal the true project returns and receive full re-payment. The size of the external finance premium that results from these market frictions may be affected by monetary policy actions.
The Bank of England has announced interest rates have been cut for a second time this year. The Bank’s base rate has dropped from 5 per cent to 4.75 per cent, following on from a similar cut in ...
The interest rate channel plays a key role in the transmission of monetary impulses to the real economy. The central bank of a major country is, in principle, able to trigger expansionary and restrictive effects in the real economy, by varying the federal funds rate and hence the short-term nominal interest rate.
As the International Monetary Fund explains, long-lasting inflation results from an imbalance between the money supply and the size of the economy. An overabundance of money reduces its purchasing ...
The UK inflation rate has gone up to 2.6 per cent in November, rising for the second month in a row and increasing at the fastest pace since mid-2022. A hike in tobacco duty and petrol prices are ...
Monetary inflation is a sustained increase in the money supply of a country (or currency area). Depending on many factors, especially public expectations, the fundamental state and development of the economy, and the transmission mechanism, it is likely to result in price inflation, which is usually just called "inflation", which is a rise in the general level of prices of goods and services.
While inflation has cooled significantly from its peak of 9.1% in June 2022, recent data shows some persistence, Signs of cooling inflation had paved the way for September’s first rate cut in ...
As a direct result of this, lenders may only offer credit to borrowers they deem as low-risk and reject high-risk borrowers, leading to credit rationing for the latter. This can have negative consequences for borrowers, such as limiting their ability to invest or start a business, and for the economy as a whole, as it can lead to decreased ...