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Definition of Discount Rate

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Definition: At least two meanings:

(1) The interest rate at which an agent discounts future events in preferences in a multi-period model. Often denoted r. A present-oriented agent discounts the future heavily and so has a HIGH discount rate. Contrast with discount factor. See also future-oriented.

In a discrete time model where agents discount the future by a factor of b, one finds r=(1-b)/b, following from b=1/(1+r).

(2) The Discount Rate is the name of the rate at which U.S. banks can borrow from the U.S. Federal Reserve.(Econterms)

Terms related to The Discount Rate:

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