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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 Federal Reserve today made its final interest rate decision of 2024, capping a year during which the central bank provided some financial relief to inflation-weary borrowers in September by ...
If high inflation strikes the American economy, high interest rates are likely to follow. Even though rising interest rates can make all types of financing -- from credit cards to home mortgages to...
Chief among them is that inflation remains sticky: According to the Fed's preferred gauge, annual "core" inflation, which excludes the most volatile categories, was 2.8% in October.
The interest rate channel posits that an increase in the short-term nominal interest rate leads first to an increase in longer-term nominal interest rates. This is described by the expectation hypothesis of the term structure. In turn, this affects the real interest rate and the cost of capital, because prices are assumed to be sticky in the ...
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.
The nominal interest rate is the accounting interest rate – the percentage by which the amount of dollars (or other currency) owed by a borrower to a lender grows over time, while the real interest rate is the percentage by which the real purchasing power of the loan grows over time. In other words, the real interest rate is the nominal ...
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 ...