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RBA Glossary definition for Real interest rate

Real interest rate – The real interest rate refers to the cost of borrowing money (i.e. the nominal interest rate) net of inflation. It takes account of the fact that part of the nominal interest that borrowers pay to lenders represents compensation for anticipated inflation. The remaining �real� component better reflects the economic cost of borrowing and the return to lending.

RBA Glossary definition for interest rate

interest rate – The term used to describe the cost of borrowing money or the return to the owner of the funds which are invested or lent out. It is usually expressed as a percent per annum of the amount of money borrowed, lent or invested.

Search Results

Simulation Results

1 Nov 1989 RDP 8907
Mark Britten-Jones and Warwick J. McKibbin
In this simulation we assume that real interest rates rise permanently by 300 basis points. ... The interesting comparison between this shock and the real interest rate shock is that both lead to a rise in nominal interest rates.
https://www.rba.gov.au/publications/rdp/1989/8907/simulation-results.html

Tax Policy and Housing Investment in Australia

1 Nov 1989 RDP 8907
Mark Britten-Jones and Warwick J. McKibbin
Research Discussion Papers contain the results of economic research within the Reserve Bank
https://www.rba.gov.au/publications/rdp/1989/8907.html

Conclusion

1 Nov 1989 RDP 8907
Mark Britten-Jones and Warwick J. McKibbin
in inflation with no change in real interest rates actually increased real investment in housing due to the tax distortions in the model. ... Another is that for investment to remain constant real interest rates have to rise as inflation rises.
https://www.rba.gov.au/publications/rdp/1989/8907/conclusion.html

Model Structure

1 Nov 1989 RDP 8907
Mark Britten-Jones and Warwick J. McKibbin
We can think of the nominal interest rate as being composed of two parts, an inflation premium π and a real component r. ... The information contained in q. should be noted; it contains information on taxes, rents and future rents as well as interest
https://www.rba.gov.au/publications/rdp/1989/8907/model-structure.html

Introduction

1 Nov 1989 RDP 8907
Mark Britten-Jones and Warwick J. McKibbin
Under this framework, taxes and interest rates affect the profitability and market value of capital in the housing sector. ... in tax policy, inflation and interest rates.
https://www.rba.gov.au/publications/rdp/1989/8907/introduction.html

Numerical Solution of the Model

1 Nov 1989 RDP 8907
Mark Britten-Jones and Warwick J. McKibbin
average real price of a home; endogenous. P. L. =. real price of a unit of land; endogenous. q =. =. Tobin's q; endogenous. q. =. modified q; endogenous. r. =. real interest rate; exogenous. ... Y. =. real per capita income; exogenous. u. =. income tax
https://www.rba.gov.au/publications/rdp/1989/8907/numerical-solution-of-the-model.html

Appendix II

1 Nov 1989 RDP 8907
Mark Britten-Jones and Warwick J. McKibbin
HS. remains constant and that P. s. the price index grows at the rate of inflation π. ... The happy person who owns his house outright has a discount rate i = (1u)r (1g)π.
https://www.rba.gov.au/publications/rdp/1989/8907/appendix-ii.html