Macroeconomists talk of “the” interest rate, but in fact a myriad of interest rates exist, depending on such variables as time to maturity of the financial asset, how the interest is taxed, how liquid the financial asset is, and what is known about the borrower (in particular, the risk of default). Short-term debt instruments, of maturity less than a year, are traded in what is called the money market. Longer-term instruments are traded in the capital market.

Typical interest rates in the money market are T-bill rates (on U.S. government Treasury bills); commercial paper rates (on loans by financial institutions to large banks and corporations); the federal funds rate (on very short-term loans between banks of their deposits at the Fed); and the Eurodollar rate (on U.S. dollars deposited outside the United States). Typical interest rates in the capital market are the mortgage rate, the corporate bond rate, the Treasury bond rate, and the municipal bond rate.

All these interest rates tend to move together, however, so little harm is done by analyzing the economy in terms of a single representative interest rate, as we do throughout the rest of this book. For those interested, the “Currency Trading” column in the “Money & Investing” section of the Wall Street Journal lists several key U.S. and foreign interest rates in about 20 categories.