Dear Maxine,
The Loanable Funds Framework, is one of the two primary models for
understanding the determination of interest rates, the other being The
Liquidity Preference Framework introduced by Keynes. The Loanable
Funds Framework is based upon the equilibrium of the demand and supply
of loanable funds.
Securities are generally considered to include investment vehicles
such as stocks, bonds, limited partnership interests, and notes.
However, for the purposes of the model derivation, bonds can be used
as representative of all securities and it is further assumed that
there is only one interest rate.
… from here I will not repeat the content of the Elmhurst College
paper as I believe it is exactly what you are looking for:
1. Statement of the inverse relationship of bond price to bond
interest rate.
2. Derivation of bond demand
3. Derivation of bond supply
4. Discussion of the awkwardness of the interest rate numbers decrease
as one ascends the axis.
5. Introduction of the concept of loanable funds.
6. Discussion of the shifts in the demand and supply curves of
loanable funds showing a shift of the equilibrium interest rate.
Other than the inverse relationship of price to interest rate – the
analysis seems to reduce to supply, demand and equilibrium price of
loanable funds. Many papers seemed to start the discussion at this
point… excluding securities and bonds.
This is the most appropriate paper as it shows the relationship of
bond prices to loanable funds.
Classnotes for economics 410 from Elmhurst College. Other chapters may
also be of interest.
http://www.elmhurst.edu/~cbe/vcroom/eco410/lectures/chapter5.doc
Provides a point form summary of the loanable fund framework,
unfortunately no graphs.
Nusanne Meekaewkunchorn, Finance 3317 course notes.
http://www2.uta.edu/nusanee/spring01/fina3317/ch2.htm
This provides a better citation, ie text rather than lecture notes.
However there is no development of the relationship to securities.
McConnell, Campbell R., Brue, Stanley R.,. Barbiero, Thomas P.,
Microeconomics,
http://highered.mcgraw-hill.com/sites/0070886687/student_view0/chapter16/chapter_highlights.html
U.K. Politics Brief, Loanable funds theory
http://www.ukpoliticsbrief.co.uk/INTratesNU.pdf
Dr Whitehead, Loanable funds theory, pretty Powerpoint link
http://www.csba.uncwil.edu/classes_global/ecn/whiteheadj/ecn324/notes/ch8.htm
Stanford, Richard, A., Market for loanable funds, interesting paper
that covers the whole area of interest determination
http://www.furman.edu/~stanford/m8.htm
Manhattan College, Loanable Funds Theory vs Liquidity Preference
Theory
http://www.manhattan.edu/business/ecofin/fmaclach/ch6.html
Definition of security
Wisconsin Department of Financial Institutions
http://www.wdfi.org/fi/securities/regexemp/definition.htm
Search Terms:
“loanable fund theory”
“loanable fund framework”
Regards, |
