tag:blogger.com,1999:blog-6704573462403312459.post7353919440889690959..comments2024-03-28T06:53:23.473-04:00Comments on Moneyness: The natural rate of interest and the own-rate argumentJP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-6704573462403312459.post-70241735748726755882013-08-05T13:18:02.246-04:002013-08-05T13:18:02.246-04:00THANKS; I've just understood the mean of "...THANKS; I've just understood the mean of "Natural Rate of Interest. It IS the rate that would be relevant in case of a barter Economy. So, it doesn't exist in a monetary Economy. www.MiguelNavascues.comhttps://www.blogger.com/profile/00880006105532291958noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-49181852697100407742012-06-27T07:05:44.581-04:002012-06-27T07:05:44.581-04:00Lets consider an 'own rate' as a rent of m...Lets consider an 'own rate' as a rent of money saved or created to bridge the inter temporal price gap between T0 and T1 when the commodity will be sold. <br /><br />Lets then consider a toy model that for every commodity there is a bank solely financing that commodity. <br /><br />A loan by a bank to finance the commodity purchase will be on the assumption of a sale price at T1. They will make more or less profit dependent upon the accuracy of their forecast.<br /><br />Wheat yield at T1 will depend upon the risks of a bad harvest and will built into the price of credit.<br /><br />If there is a bad harvest the equity of the bank will decline and their ability to lend for production of that commodity will fall. If there is a run of bad harvests the equity price of the bank will fall against risk adjusted assumptions.<br /><br />An investor then - in a toy model where the only investment opportunities are single commodity banks, will attempt to form a portfolio of different banks to hedge risk over the yield time of their investments.<br /><br />Now widen the model so that banks could not only loan against their single commodities but also to purchase other peoples bank investment portfolios. This will then produce a single 'money market' interest rate.<br /><br />So can we say 'so what' for multiple own rates then. Can we say it doesn't matter in a monetary economy?<br /><br />No - because different commodities will have different responses to changes to the 'money' interest rate. <br /><br />If interest rates are lowered then production will become profitable for processes with high own rates/high risk rates and vice versa. This creates the conditions for speculation and overinvestment in some sectors (which wont always have a lot to do with the time structure of capital)Anonymousnoreply@blogger.com