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dc.contributor.authorParchure, Rajas
dc.date.accessioned2017-07-28T11:15:49Z
dc.date.available2017-07-28T11:15:49Z
dc.date.issued2015-04
dc.identifier.citation16 pen_US
dc.identifier.urihttp://hdl.handle.net/10973/46943
dc.description.abstractExtant 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.en_US
dc.language.isoen_USen_US
dc.publisherGokhale Institute of Politics and Economics (GIPE), Pune (India)en_US
dc.relation.ispartofseriesWorking Paper;29
dc.titleInput-Output theory of interest rates (The)en_US
dc.typeWorking Paperen_US


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