Interest Rates

34 Pages Posted: 2 Aug 2019

See all articles by Eric Monnet

Eric Monnet

Banque de France; Paris School of Economics (PSE)

Date Written: July 2019


Many influential cliometric studies have examined historical interest rates in order to assess investment efficiency, the integration of markets, the economic effects of changes in policies or institutions, the sources of macroeconomic cycles, and so on. The common feature of this approach to economic history is that it is based on the crucial assumption that interest rates are the market prices at which demand meets supply. In this perspective, most debates focus on how to calculate yields or compare different rates of return on capital. Cliometricians developed innovative methods to construct yields and lending rates that were not specified in historical sources. It is only quite recently that economic historians have turned to cases where interest rates are not market-clearing prices. In such cases, there is little connection between interest rates and the state of the economy. Highlighting market imperfections, some recent studies have challenged earlier historical interpretations that overlooked the potential disconnection between prices (interest rates) and quantities. They offer new insights into the historical functioning of credit markets, central banking and government intervention in financial systems.

Keywords: central bank, interest rates, market clearing (rationing), usury law, yield

JEL Classification: E4, N1, N2

Suggested Citation

Monnet, Eric, Interest Rates (July 2019). CEPR Discussion Paper No. DP13896, Available at SSRN:

Eric Monnet (Contact Author)

Banque de France ( email )


Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014

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