Real interest rate - Revision history

imported>Doug Williamson: Layout.

2023-03-11T23:48:02Z

Layout.

← Older revision		Revision as of 23:48, 11 March 2023
Line 12:		Line 12:


	===Warning===		==Warning==

	Of course the use of "expected" inflation above means that, because different people will have different views on inflation, the real rate of interest is an estimate varying, perhaps significantly, according to who is making the estimate.		Of course the use of "expected" inflation above means that, because different people will have different views on inflation, the real rate of interest is an estimate varying, perhaps significantly, according to who is making the estimate.
Line 18:		Line 18:


	=== Decompounding calculation of real interest rate ===		== Decompounding calculation of real interest rate ==
	When inflation rates and money interest rates are small, the real interest rate can be estimated fairly accurately with a simple subtraction:		When inflation rates and money interest rates are small, the real interest rate can be estimated fairly accurately with a simple subtraction:

imported>Doug Williamson: Classify page.

2022-07-02T08:05:21Z

Classify page.

← Older revision		Revision as of 08:05, 2 July 2022
Line 55:		Line 55:
	==Other resource==		==Other resource==
	[[Media:2013_10_Oct_-_The_real_deal.pdf\| The real deal, The Treasurer student article]]		[[Media:2013_10_Oct_-_The_real_deal.pdf\| The real deal, The Treasurer student article]]

			[[Category:The_business_context]]
			[[Category:Financial_products_and_markets]]

imported>Doug Williamson: Add links.

2022-04-29T21:04:17Z

Add links.

← Older revision		Revision as of 21:04, 29 April 2022
Line 48:		Line 48:
	== See also ==		== See also ==
	* [[Inflation]]		* [[Inflation]]
			* [[Interest]]
			* [[Interest rate]]
	* [[Real]]		* [[Real]]


	===Other ~~resources=~~==		==Other resource==
	[[Media:2013_10_Oct_-_The_real_deal.pdf\| The real deal, The Treasurer student article]]		[[Media:2013_10_Oct_-_The_real_deal.pdf\| The real deal, The Treasurer student article]]

imported>Doug Williamson: Remove toc.

2016-05-11T14:35:49Z

Remove toc.

← Older revision		Revision as of 14:35, 11 May 2016
Line 1:		Line 1:
			__NOTOC__
	An interest rate, paid or received, after excluding the effects of inflation.		An interest rate, paid or received, after excluding the effects of inflation.

imported>Doug Williamson: Add =

2016-02-15T06:55:57Z

Add =

← Older revision		Revision as of 06:55, 15 February 2016
Line 1:		Line 1:
	An interest rate, paid or received, after excluding the effects of inflation.		An interest rate, paid or received, after excluding the effects of inflation.

	Thus if the expected rate of inflation is 4% and one may borrow at 6% nominal on a similar compounding basis, the real rate of interest may be taken as approximately +2% (6% - 4%).		Thus if the expected rate of inflation is 4% and one may borrow at 6% nominal on a similar compounding basis, the real rate of interest may be taken as approximately +2% (= 6% - 4%).

	If one could borrow at 3% nominal and inflation were 4% as before, the real rate would be approximately 3% - 4% = -1%.		If one could borrow at 3% nominal and inflation were 4% as before, the real rate would be approximately 3% - 4% = -1%.

imported>Doug Williamson: Expand explanations.

2016-02-15T06:55:00Z

Expand explanations.

← Older revision		Revision as of 06:55, 15 February 2016
Line 1:		Line 1:
	An interest rate, paid or received, after excluding the effects of inflation.		An interest rate, paid or received, after excluding the effects of inflation.

	Thus if the expected rate of inflation is 4% and one may borrow at 6% nominal on a similar compounding basis, the real rate of interest may be taken as approximately +2%. If one could borrow at 3% nominal, the real rate would be approximately -1%.		Thus if the expected rate of inflation is 4% and one may borrow at 6% nominal on a similar compounding basis, the real rate of interest may be taken as approximately +2% (6% - 4%).

			If one could borrow at 3% nominal and inflation were 4% as before, the real rate would be approximately 3% - 4% = -1%.


	Do not overlook the possibility of negative nominal interest rates. Central banks have been known to "pay" negative interest rates on banks' deposits with them - and some have achieved the same effect by imposing equivalent charges.		Do not overlook the possibility of negative nominal interest rates. Central banks have been known to "pay" negative interest rates on banks' deposits with them - and some have achieved the same effect by imposing equivalent charges.
Line 8:		Line 11:


	~~'''~~Warning~~.'''~~		===Warning===

	Of course the use of "expected" inflation above means that, because different people will have different views on inflation, the real rate of interest is an estimate varying, perhaps significantly, according to who is making the estimate.		Of course the use of "expected" inflation above means that, because different people will have different views on inflation, the real rate of interest is an estimate varying, perhaps significantly, according to who is making the estimate.
Line 14:		Line 17:


	== Decompounding calculation of real interest rate ==		=== Decompounding calculation of real interest rate ===
	When inflation rates and money interest rates are small, the real interest rate can be estimated fairly accurately with a simple subtraction:		When inflation rates and money interest rates are small, the real interest rate can be estimated fairly accurately with a simple subtraction:

Line 32:		Line 35:
	= 1.92%		= 1.92%


			Similarly, where the nominal borrowing rate is 3% and the inflation rate 4%, the strictly calculated real rate is:

			(1.03 / 1.04) - 1

			= - 0.0096

			= - 0.96% (negative)

imported>Doug Williamson: Link with The Treasurer.

2015-11-21T16:32:39Z

Link with The Treasurer.

← Older revision		Revision as of 16:32, 21 November 2015
Line 37:		Line 37:
	* [[Inflation]]		* [[Inflation]]
	* [[Real]]		* [[Real]]


			===Other resources===
			[[Media:2013_10_Oct_-_The_real_deal.pdf\| The real deal, The Treasurer student article]]

imported>Doug Williamson: Added more space

2015-04-08T09:03:23Z

Added more space

← Older revision		Revision as of 09:03, 8 April 2015
Line 3:		Line 3:
	Thus if the expected rate of inflation is 4% and one may borrow at 6% nominal on a similar compounding basis, the real rate of interest may be taken as approximately +2%. If one could borrow at 3% nominal, the real rate would be approximately -1%.		Thus if the expected rate of inflation is 4% and one may borrow at 6% nominal on a similar compounding basis, the real rate of interest may be taken as approximately +2%. If one could borrow at 3% nominal, the real rate would be approximately -1%.

	Do not overlook the possibility of negative nominal interest rates. Central banks have been known to "pay" negative interest rates on banks' deposits with them - and some have achieved the same effect by imposing equivalent charges. Even with a negative nominal interest rate, the real rate of interest may be positive or negative according to the nominal rate's relationship with the expected rate of inflation (that may itself be positive or negative).		Do not overlook the possibility of negative nominal interest rates. Central banks have been known to "pay" negative interest rates on banks' deposits with them - and some have achieved the same effect by imposing equivalent charges.

	* Warning. Of course the use of "expected" inflation above means that, because different people will have different views on inflation, the real rate of interest is an estimate varying, perhaps significantly, according to who is making the estimate.		Even with a negative nominal interest rate, the real rate of interest may be positive or negative according to the nominal rate's relationship with the expected rate of inflation (that may itself be positive or negative).


			'''Warning.'''

			Of course the use of "expected" inflation above means that, because different people will have different views on inflation, the real rate of interest is an estimate varying, perhaps significantly, according to who is making the estimate.

imported>Doug Williamson: Show decompounding calculation.

2015-03-13T08:45:13Z

Show decompounding calculation.

← Older revision		Revision as of 08:45, 13 March 2015
Line 6:		Line 6:

	* Warning. Of course the use of "expected" inflation above means that, because different people will have different views on inflation, the real rate of interest is an estimate varying, perhaps significantly, according to who is making the estimate.		* Warning. Of course the use of "expected" inflation above means that, because different people will have different views on inflation, the real rate of interest is an estimate varying, perhaps significantly, according to who is making the estimate.



			== Decompounding calculation of real interest rate ==
			When inflation rates and money interest rates are small, the real interest rate can be estimated fairly accurately with a simple subtraction:

			For example, as above:

			0.06 - 0.04 = 0.02

			= 2.00%


			More strictly, because the real rate and the inflation rate compound together, they would be ''decompounded'' to calculate the real rate as follows:

			(1.06 / 1.04) - 1

			= 0.0192

			= 1.92%

imported>Doug Williamson: Link with Inflation page.

2015-03-12T07:00:00Z

Link with Inflation page.

← Older revision		Revision as of 07:00, 12 March 2015
Line 10:		Line 10:

	== See also ==		== See also ==
			* [[Inflation]]
	* [[Real]]		* [[Real]]