New answers tagged interest
The bank in which you deposit your capital doesn't create the money to pay your interest; it earns it by lending to someone who can make good use of the money. The textbook example is a farmer who borrows £1000 to spend on fertiliser, gains £1200 in extra crop, and repays the bank £1000 plus £100 in interest. The bank gives you £50 for the use of your money, ...
I think that you have to distinguish between a 'fiat' (modern) monetary system and a 'gold standard' one. But sustainability will always be ensured endogenously, one way or another. Fiat money is created whenever a loan is made, and the \$50 you describe will be created endogenously in the economy. Advocates would call it a virtous rather than a vicious ...
The interest does not necessarily come from another loan. The ECB is paying interest to banks which is essentially to create ("print") new money. It is a fact, that the money supply is constantly growing over time, which in a simple model would just equal the interest paid out on loans. That does not necessarily have something to do with the economy being ...
Some models do use ln(r_t), like Black–Derman–Toy and the Black–Karasinski models. Mainly to avoid negative interest rates in low rates / high volatility environments through the use of the log-normal distribution. Negative rates can wreak havoc in option premiums for example. They are interest rates indeed, that we call short rates, not yield on ...
These are not yield. They are instantaneous short rates which are not directly observable in the market.
1) JPY yield curve is currently upward sloping, not inverted... 2) Empirically, an upward sloping yield curve predicts recessions, not an inverted one. See this famous paper http://newyorkfed.org/research/current_issues/ci2-7.pdf
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