What is a 'discount rate' in the context of macroeconomics?

Is the discount rate identical to the interest rate?

Here is a quote from a paper: ‘Figure 9 shows a GDP weighted average of central bank discount rates…’
The previous page of the paper is talking about how the Fed, BoE and ECB cut interest rates in 2008.

When the authors talk about the discount rate, are they just referring to the nominal interest rate? Is it referred to as the discount rate because you ‘discount’ the value of money tomorrow as it is less valuable than money today (as you can invest and earn interest)?

To Sipra M: So does that mean that the discount rate is simply a percentage amount which the central bank knocks off the interest rate for its loans?

e.g. if the nominal interest rate is 5%, and there is a commercial bank in trouble which needs immediate liquidity, a CB discount rate of 2.5% would mean that the CB would lend to commercial bank at a 2.5% interest rate?

Thanks for your help!

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One Response to “What is a 'discount rate' in the context of macroeconomics?”

  1. Sipra M says:

    Discount rate : rate of discount charged by Central bank to commercial banks as a lender of last resort. Generally commercial banks looks at the CB when they are of acute shortage of liquidity. Whatever securities , bonds com. banks have against which they take liquid money before the time of maturity. CB help them to get liquidity but at a higher discount rate.
    DR is not identical to RI . RI is charged by the CB against loan they give it to customer. RI also given to savers with the banks.

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