Gokhale Institute of Politics and Economics Digital Repository
    • Login
    View Item 
    •   DSpace@GIPE
    • Dhananjayrao Gadgil Library
    • GIPE Working Papers
    • View Item
    •   DSpace@GIPE
    • Dhananjayrao Gadgil Library
    • GIPE Working Papers
    • View Item
    JavaScript is disabled for your browser. Some features of this site may not work without it.

    Input-Output theory of interest rates (The)

    Thumbnail
    View/Open
    GIPE-WP-29.pdf (349.7Kb)
    Date
    2015-04
    Author
    Parchure, Rajas
    Metadata
    Show full item record
    Abstract
    Extant theories of interest rates seek to determine of the level of the interest rate without reference to the structure of interest rates. In contrast, this paper proposes a unified theory of the level and structure of interest rates. The unified theory is based on the simple idea that banks “produce” loans of different maturities from deposits of different maturities by providing the minimum prudential reserves to maintain their solvency while maximizing profitability. The optimal assignment of deposits to loans results in a system of equations (which is formally identical to the Leontief price system) that determines a unique positive solution for the structure of interest rates that banks must quote. Interest rate quotations thus derived normally exhibit their usual upward slopes but can become perverse in economic circumstances that require banks to meet short-term loan demand from their long-term deposits. Generalisations of the basic theory to cover issues like the pricing of default risks, determination of interest rate spreads and the effects of monetary policy have been discussed.
    URI
    http://hdl.handle.net/10973/46943
    Collections
    • GIPE Working Papers [42]

    DSpace software copyright © 2002-2016  DuraSpace
    Contact Us | Send Feedback
    Theme by 
    Atmire NV
     

     

    Browse

    All of DSpaceCommunities & CollectionsBy Issue DateAuthorsTitlesSubjectsThis CollectionBy Issue DateAuthorsTitlesSubjects

    My Account

    LoginRegister

    DSpace software copyright © 2002-2016  DuraSpace
    Contact Us | Send Feedback
    Theme by 
    Atmire NV