Effect of central bank interest suppression policy

 

interest initial values

 

The interest rate i is the the product of velocity V and Surplus value S = 1-u.

V*S = V*(1-u) converges at equilibrium to V*(1-u) = R where R is real investment demand.

Writing f’ = df/dt,

R = Q’/Q where Q is the real product. The interest rate i = V*(1-u) converges to a value i = R as V and 1-u converge to equilibrium values.

When a central bank sets an interest rate, that rate acts as a new initial value i(0).

For lower values of i(0), the range of oscillation is shifted to the right, in the direction of higher S = 1-u
(lower u) and lower velocity V.

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