Expectations: The Basic Tools
Chapter 19
Masoud Anjomshoa
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Expectations, Real and NominalInterest Rates: .Nominal Interest Rate, i:Rate of return on assets, measured in terms of current dollar.
Real Interest Rate, r:Rate of return on assets, measured in terms of goods.
Year t
Investment in terms of current dollar
Year t+1
it
Investment in terms of goods
$1 1 unit of good
$(1+it)
rt
Masoud Anjomshoa
(1+rt) units of good
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Real vs. Nominal Interest Rates: .Year tConsumptionYear t+11 unit of goodPt$PtrtPtunitsof?1?rt???1?it?ePt?1goodPet+1itInvestment $(1+it)PtPt?Pte?1??Pte?1?Pt??1?rt??1?it?e?1?it??1?rt???11??1??1?it??1?rt??????PPPt?1?t?t???1?it??1?rt?1???et?Fisher effect:it?rt??et3Masoud AnjomshoaNominal & Real Interest Rates:IS: Y ? C ? G ?I(Y ,i –πe)??iLMMLM: ?Y?L(i)P?eFE:i?r??IS: Y ? C ? G ?I(Y ,r)??irrOIS?YLMYMLM: ?Y?L(r + πe)P?eFE:i?r??irOISMasoud Anjomshoa?YY4Nominal & Real Interest Rates:Suppose initially πe=0, What if πe↑:eiLMiIS: Y ? C ? G ?I(Y ,i??)1??r =ir1MAOB?YISYLMLM: P?Y?L(i)?rIS: Y ? C ? G ?I(Y ,r)??MeLM: ?Y?L(r??)?Pi1i =rr1Masoud AnjomshoaAOB?YISY5Nominal & Real Interest Rates:IS: Y ? C ? G ?I(Y ,i??e?)?LM: MP?Y?L(i?) AD: Y ? Y(M/P,G ,T ,?e????)AS:P?Pe?1???F(u? , z?) ?e???gmSuppose the Central Bankincreases the growth rate of money supply from gto gmm1, unanticipated.A: Short Run B: Medium Run EquilibriumEquilibriumP?YAS2AS1PB2=P2e ASP1O’AAD2AD1P=PeOADAD’i?YY1LMY2LMiLM12Bgm1=πe1rigm=πeOi11AISr1gm=πeISMasoud Anjomshoa?YY1Y6Nominal & Real Interest Rates:Comparing O and B
Y = C + G + I
r πe1= π1= gm1?i2= r + πe1
Impact of expansionary monetary policy on interest rates:Short Run: i↓ and r↓Medium Run: i↑and r√
Neutrality of Money:In the medium run, money supply cannot affect the real exchange rate, but
increases the nominal interest rate by the increase in growth rate of money.
Fisher effect in medium run: rn= i–gm
Natural rate of real interest rate
MasoudAnjomshoa
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Microeconomics Real - Interest - Rate - 2016 - 图文
