Editing Interest rate (section)

===Inflationary expectations===
According to the theory of [[rational expectations]], borrowers and lenders form an expectation of [[inflation]] in the future. The acceptable nominal interest rate at which they are willing and able to borrow or lend includes the [[real interest rate]] they require to receive, or are willing to pay, plus the rate of [[inflation]] they expect. Under behavioral expectations, the formation of expectations deviates from rational expectations due to cognitive limitations and information processing costs. Agents may exhibit myopia (limited attention) to certain economic variables, form expectations based on simplified heuristics, or update their beliefs more gradually than under full rationality. These behavioral frictions can affect monetary policy transmission and optimal policy design.<ref>{{cite journal |doi=10.1016/j.jfs.2023.101151 |title=Optimal monetary policy under bounded rationality |journal=Journal of Financial Stability |volume=67 |pages=101151 |year=2023 |last1=Benchimol |first1=Jonathan |last2=Bounader |first2=Lahcen |hdl=10419/212417 |url=http://www.imf.org/external/pubs/cat/longres.aspx?sk=47048 |hdl-access=free }}</ref>