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Interest rates

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  • Monnet, Eric

Abstract

Many influential cliometric studies have examined historical interest rates in order to assess investment efficiency, the integration of markets, the economic effects of changes in policies or institutions, the sources of macroeconomic cycles, and so on. The common feature of this approach to economic history is that it is based on the crucial assumption that interest rates are the market prices at which demand meets supply. In this perspective, most debates focus on how to calculate yields or compare different rates of return on capital. Cliometricians developed innovative methods to construct yields and lending rates that were not specified in historical sources. It is only quite recently that economic historians have turned to cases where interest rates are not market-clearing prices. In such cases, there is little connection between interest rates and the state of the economy. Highlighting market imperfections, some recent studies have challenged earlier historical interpretations that overlooked the potential disconnection between prices (interest rates) and quantities. They offer new insights into the historical functioning of credit markets, central banking and government intervention in financial systems.

Suggested Citation

  • Monnet, Eric, 2019. "Interest rates," CEPR Discussion Papers 13896, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:13896
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    References listed on IDEAS

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    2. Acosta, Juan & Cherrier, Beatrice, 2018. "The transformation of economic analysis at the Federal Reserve during the 1960s," SocArXiv vdy2z, Center for Open Science.
    3. Bignon, Vincent & Flandreau, Marc, 2018. "The Other Way: A Narrative History of the Bank of France," CEPR Discussion Papers 13138, C.E.P.R. Discussion Papers.
    4. Klingelhöfer, Jan & Sun, Rongrong, 2019. "Macroprudential policy, central banks and financial stability: Evidence from China," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 19-41.
    5. Monnet, Eric & Puy, Damien, 2020. "Do old habits die hard? Central banks and the Bretton Woods gold puzzle," Journal of International Economics, Elsevier, vol. 127(C).
    6. Tim Willems, 2020. "What Do Monetary Contractions Do? Evidence From Large Tightenings," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 38, pages 41-58, October.
    7. Eric Monnet & Miklos Vari, 2019. "Liquidity Ratios as Monetary Policy Tools: Some Historical Lessons for Macroprudential Policy," IMF Working Papers 2019/176, International Monetary Fund.
    8. Monnet, E., 2016. "Monetary policy without interest rates. The French experience with quantitative controls (1948 to 1973)," Rue de la Banque, Banque de France, issue 17, January..

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    More about this item

    Keywords

    Interest rates; Yield; Central bank; Usury law; Market clearing (rationing);
    All these keywords.

    JEL classification:

    • N2 - Economic History - - Financial Markets and Institutions
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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