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Markets - Money markets
Introduction
On the face of it you might have thought that once the MPC have pronounced each month what the official interest rate will be, that would be it for a month. Nothing could be further from the truth. Once the official rate has been set, the work begins to make sure that the MPC rate is maintained in the money markets for the whole of that month. In this section we look at how that is done.
- Explanation - a good starting point for finding out how interest rates are kept at the level set by the MPC.
- Theories - more detail on some of the theories behind maintaining interest rates. What determines the equilibrium interest rate? What are 'repo' operations? How does the Bank create a shortage each day?
- Worksheets - some worksheets to help you test your understanding of interest rates.
- Further work - other areas of economic theory that you may want to consider when studying money markets and the effects of interest rates.
Before looking at this section it would be useful to have looked at the work of the MPC to see how they set interest rates.
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