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Money Supply and Financial Measures Compound Annual Growth Rates

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The compound annual growth rate (CAGR) shows the rate of return of an investment over a certain period of time, expressed in annual percentage terms.The easiest way to think of CAGR is to recognize that over a number of years, the value of something may change – hopefully for the better – but often at an uneven rate

The CAGR provides the one rate that defines the return for the entire measurement period.

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As inflationary pressures caused by the sharp exchange rate adjustments in 2015–2016 are abating and currencies rebound, most central banks in the CIS continued to relax monetary policy in 2017, with several policy rate cuts in the Russian Federation. In certain cases, high levels of dollarization and weak financial intermediation are hampering control over the lending rates and money supply. Concurrently, some countries (for example, Kyrgyzstan) are taking measures to restrict dollar-denominated lending and to convert outstanding foreign exchange loans to domestic currency loans. Compared with other emerging markets, real interest rates remain high in many CIS economies

South-Eastern Europe: In South-Eastern Europe, formal or informal currency pegs or unilateral euroization constrain the conduct of monetary policy, but the overall monetary conditions are accommodative. In countries with flexible currencies, policy rates remain at a record low, such as in Albania, thanks to the earlier disinflationary trend and the continuing ECB monetary loosening. Interest rates were also gradually reduced in Serbia.

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All modern theories of economicgrowth—for example, Solow (1956), Lucas (1988), Romer (1990), and Aghion andHowitt (1992)—are designed with this fact in mind.The sustained growth also naturally raises the question of whether suchgrowth can and will continue for the next century. On the one hand, this fact more thanany other helps justify the focus of many growth models on the balanced growth path,a situation in which all economic variables grow at constant exponential rates forever.And the logic of the balanced growth path suggests that the growth can continue indef-initely

On the other hand, as we will see, there are reasons from other facts and theories to question this logic While the future of frontier growth is surely hard to know, the stability of frontier growth is most certainly misleading as a guide to growth further back in history. Sustained exponential growth in living standards is an incrediblyrecent phenomenon. For thousands and thousands of years, life was, in the evocativelanguage of Thomas Hobbes, “nasty, brutish, and short.” Only in the last two centurieshas this changed, but in this relatively brief time, the change has been dramatic

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Usually, the CAGR measures the return on an investment over a certain period of time. The internal rate of return (IRR) also measures investment performance but is more flexible than CAGR. The most important distinction is that CAGR is straightforward enough that it can be calculated by hand. In contrast, more complicated investments and projects, or those that have many different cash inflows and outflows, are best evaluated using IRR. To back into the IRR rate, a financial calculator, Excel, or portfolio accounting system is ideal.

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Stokey, N.L., Rebelo, S., 1995. Growth effects of flat-rate taxes. J. Polit. Econ. 103, 519–550.

Syverson, C., 2011. What determines productivity? J. Econ. Lit. 49 (2), 326–365

Ramey, V.A., Francis, N., 2009. A century of work and leisure. Am. Econ. J. Macroecon. 1 (2), 189–224.

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