Interest Rates

What you'll learn

• ✓Differentiate nominal and real rates
• ✓Apply compound interest
• ✓Link short rates to central bank policy

Lessons

1. ⏳
   Rent for Money

   Interest, borrowers, and lenders
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2. Simple vs Compound

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3. Nominal vs Real Rates

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4. The Policy Rate

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5. Compounding Across a Lifetime

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6. Final Boss: Rates in the Wild

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Sources

All content is drawn from the sources below. We deliberately avoid unverified material.

• Principles of Corporate Finance (Brealey, Myers, Allen)
  McGraw-Hill · book
  Reference for simple and compound interest formulas, and the Fisher decomposition.
• Macroeconomics, N. Gregory Mankiw
  Worth Publishers · book
  Source for the Rule of 72 heuristic and monetary policy transmission.
• Implementation of Monetary Policy: Federal Funds Rate
  Federal Reserve Board · institutional
  FOMC sets the federal funds target rate, which anchors US short-term rates.
  https://www.federalreserve.gov/monetarypolicy/fomc.htm
• Key ECB interest rates
  European Central Bank · institutional
  Confirms deposit facility rate as the main ECB policy rate since 2019.
  https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html
• Monetary Policy Committee (MPC) and Bank Rate
  Bank of England · institutional
  BoE sets Bank Rate via the Monetary Policy Committee.
  https://www.bankofengland.co.uk/monetary-policy
• Open Market Operations historical data (federal funds target)
  Federal Reserve Board · institutional
  Historical record of the 2022-2023 Fed hiking cycle from near zero to 5.25 to 5.50 percent.
  https://www.federalreserve.gov/monetarypolicy/openmarket.htm
• Monetary policy transmission in the euro area: a decade after the onset of the global financial crisis
  European Central Bank · institutional
  Covers how policy rate changes transmit to bank lending and deposit rates, with lags.
  https://www.ecb.europa.eu/pub/economic-bulletin/articles/2019/html/ecb.ebart201902_01~3049319b8d.en.html