Re: Why is a dollar today worth more than a dollar tomorrow?

2003-12-07 Thread Fred Foldvary
--- John Morrow [EMAIL PROTECTED] wrote: By the way, there have been times and places where the measured real interest rate was essentially zero; I think this happened in Japan in the 1990s. So the question is, why at the zero rate was there not greater demand to borrow? The answer may well

Re: Why is a dollar today worth more than a dollar tomorrow?

2003-12-07 Thread AdmrlLocke
In a message dated 12/7/03 4:03:55 PM, [EMAIL PROTECTED] writes: So the question is, why at the zero rate was there not greater demand to borrow? The answer may well be that the expected future inflation and real interest rates were highly uncertain, and the transaction costs of getting and

Re: Why is a dollar today worth more than a dollar tomorrow?

2003-12-06 Thread Fred Foldvary
--- Marko Paunovic [EMAIL PROTECTED] wrote: OK. Then, as long as the expected profit from building a factory is higher than zero, I would not lend the money at zero interest rate. If at a zero rate of interest, the quantity of savings exceeds the quantity of borrowings, savers would earn zero

Re: Why is a dollar today worth more than a dollar tomorrow?

2003-12-06 Thread John Morrow
I recall a Japanese econ grad student telling me that in fact real interest rates were negative for some span and people were STILL saving in the late nineties in Japan. He also blamed several bubbles at the time (notably, real estate in Japan) on this. Interesting if true... (Anyone know the

Re: Why is a dollar today worth more than a dollar tomorrow?

2003-12-05 Thread Tyl
In order for the government to borrow money, they would need to provide an incentive for the savers to lend. Example, if you want to borrow from me what incentive would I have to lending you my money? --- john hull [EMAIL PROTECTED] wrote: For some reason, I can't get it straight in my head

Re: Why is a dollar today worth more than a dollar tomorrow?

2003-12-05 Thread Sampo Syreeni
On 2003-12-05, john hull uttered: For some reason, I can't get it straight in my head why the risk-free rate of interest would be higher than zero. The easiest example I know of is, would you be happy saving all of your income for the next year, without receiving a formidable compensation?

Re: Why is a dollar today worth more than a dollar tomorrow?

2003-12-05 Thread Fred Foldvary
On 2003-12-05, john hull uttered: For some reason, I can't get it straight in my head why the risk-free rate of interest would be higher than zero. The easiest example I know of is, would you be happy saving all of your income for the next year, without receiving a formidable compensation?

Re: Why is a dollar today worth more than a dollar tomorrow?

2003-12-05 Thread Marko Paunovic
Let's see first what the risk-free interest rate really is. It depends on two conditions. One condition is that the borrower will certainly repay the money. The other condition is that the lender will certainly be alive to collect it when the time comes. That is probably the strongest reason

Re: Why is a dollar today worth more than a dollar tomorrow?

2003-12-05 Thread Fred Foldvary
--- Marko Paunovic [EMAIL PROTECTED] wrote: In a risk-free world I can't fail. Risk-free interest is quite different from a risk-free world. We need to assume the usual risky world, but a loan that is sure to be repaid and with the interest sure to be paid, which US treasury bonds currently

Re: Why is a dollar today worth more than a dollar tomorrow?

2003-12-05 Thread Marko Paunovic
- Original Message - From: Fred Foldvary [EMAIL PROTECTED] To: Marko Paunovic [EMAIL PROTECTED]; [EMAIL PROTECTED] Sent: Friday, December 05, 2003 21:58 PM Subject: Re: Why is a dollar today worth more than a dollar tomorrow? --- Marko Paunovic [EMAIL PROTECTED] wrote: In a risk-free