samlet årgang - Økonomisk Institut - Københavns Universitet

INTEREST-RATE DEVELOPMENT IN DENMARK 1875-2003 – A SURVEY 163
Annex A:
Historical interest-rate data for Denmark – some methodological notes and issues
related to interpretation
In general interest rates depend on the characteristics of the underlying financial
assets from which the interest rates are derived. The level of interest rates thus depends
on the maturity of the underlying asset and its cash-flow profile, the level of credit
risks associated with the debtor, the degree of tradability and liquidity of the asset, and
the tax treatment of the cash flows from the asset. Furthermore, more specific details
in the contract related to the underlying asset (e.g. call provisions or provisions on collateral)
might influence the interest rate. Finally, recorded interest rates depend on
which side of the market they are quoted (bid, offer or mid prices) and the day-count
convention used for the quotation.
Even for a shorter time-span – such as three or four decades – it is not an easy task
to find data on representative interest rates that are fully comparable across time. The
choice of data for an exercise covering a time span of more than 125 years is, to an
even greater extent, determined by data availability, leaving consistency to be an important
but secondary concern. This introduces a certain degree of measurement error,
and the analysis presented in this article can only be considered as a crude review of
the broad trends in short-term and long-term interest rates in Denmark since 1875.
The first year in the period covered, 1875, was the year when the krone was introduced
as the Danish currency unit and Denmark changed her monetary standard from
silver to gold. Furthermore, the last part of the 19th century was the period in which
national financial markets in Denmark were being developed. 14 Before this period
segmentation of the regional financial markets prevented differences in interest rates
from being arbitraged away.
Another aspect in relation to the interpretation of historical interest rate data concerns
the extent to which the interest rates are market based. Regarding interest rate
conditions in Denmark since 1875 two things should be noted:
– An Act of 1 May 1933 (Act No. 143 of 1 May 1933 on Formation of an Emergency
Fund and on Reduction of the Interest Rate on Deposits with Banks and Savings
Banks) introduced maximum interest rates on deposits with banks and savings
banks. These provisions were removed again in July 1935. During the period 1935-
1973 savings banks and the commercial banks had an internal agreement regarding
maximum interest rates on deposits. 15
– Until 1942 16 there were some legal provisions regarding maximum interest rates on
14. Cf. e.g. Hansen and Johansen (1994).
15. Cf. Hoffmeyer (1960) and Mikkelsen (1993).
16. Act No. 285 of 3 July 1942 on the Interest Rate on Loans Secured by Real Property.