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July 1976

An Explanation of Movements in Short-Term Interest Rates

by Albert E. Burger

Virtually all central banks are concerned about movements in interest rates since, rightly or wrongly, the public usually regards the central bank as being responsible for such movements. An influential body of economic analysis also assigns considerable importance to the effects of movements in interest rates on economic activity. In addition, central banks have traditionally been concerned with the stability or viability of financial markets, where such stability and viability is usually viewed as being endangered by substantial fluctuations of interest rates.