What is the theory of expectations?

The economic concept of anticipation theory includes predictions from information on future interest rates. Economic studies often focus on collecting data on certain events and attempting to determine the directions of the economy or individual future transactions. The theory of anticipation requires information from the conditions of loans for future capital loans between two or more parties. In terms of these long -term interest rate information, economists will try to predict steps at short -term interest rates. The leaders represent an overview of certain parts of the economy to see if economic growth will increase, reduce or remain the same in the future. Common examples of leading indicators include building permits, supplies, monetary policy policy and interest rates for banking loans that are the subject of the E.Teorie xkací. The lagging indicators provide information about the changes that have already occurred in the economy. The most common indicators of lagging are to reduce working hours,increasing or reducing inflation, changes in consumer intake and consumer confidence.

Interest rates associated with loans represent how much an individual or company has to pay to borrow money. Many individuals and businesses lock future loans or credit lines to secure against unfavorable changes in the economy. If debtors expect interest rates to increase, they will try to lock rates closer to the current loan conditions. The opposite is true if the interest rates are higher in the short term. The creditors will wish to lock lower interest rates because they believe that the demand for money will drop, leading to a reduction in loans provided to the debtors. Economists use the expectations of the theory to assess whether interest rates in the next few months will change drastically, which may indicate growth or contraction in the economy.

Theory

Theory of expectationsmay overestimate an increase or decrease in short -term interest rates. Economists may not be able to accurately predict changes in interest rates, which will lead to lower investment revenues such as bonds. Many corporations will issue bonds as a possibility to finance fundamental changes in their business operations. Bond issuance, when interest rates fall, can lead to lower revenues, causing investments to less attract for buyers. This will reduce the company's bond market and can lead to the company to ensure further external financing. Conversely, issuing bonds at low rates that will increase; The yield will also increase with the attraction of bonds as an investment for individuals and businesses.