Retrieving "Commodity Backed Derivatives" from the archives
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Federal Reserve
Linked via "commodity-backed derivatives"
The relationship between the nominal interest rate ($i$) and the real interest rate ($r$) is articulated by the Fisher Equation, often modified by the Fed to account for structural asset stability expectations ($\Psi$):
$$i \approx r + \pi + \Psi$$
Where $\pi$ is the expected rate of inflation. The $\Psi$ factor, unique to the Federal Reserve’s operational model, often accounts for roughly 15 basis points of [i…