In the Reserve Bank Bulletin article Connecting the dots: a yield curve perspective on New Zealand Krippner explains how interest rates play a fundamental role in the economy and financial markets.

He says a glance at the business news illustrates how interest rates range from a financial investment in their own right to the tool the Reserve Bank uses to operate monetary policy.

More broadly interest rates, as the price of credit, affect people's decisions on consumption, investment, savings and borrowing.

"Given their pervasive influence, it is not surprising then that records of interest rates have existed over at least the last five millennia," comments Krippner.

When it comes to the modern global economy, there are many different interest rates to contend with.

Krippner says for example, the average New Zealander will be familiar with the mortgage rates at which banks lend. But mortgage rates can vary considerably over time and by their term, or time to maturity.

He says since 1998, the six-month fixed mortgage rate has varied between 5% and 10%.

By time to maturity, as at June 2009, mortgage rates ranged from 5.39% for six months to 7.9% for five years.

"Such substantial differences in interest rates impact materially on borrowers' wallets," says Krippner.

Besides mortgage rates, there are retail interest rates on bank deposits, non-bank deposits, personal loans, business loans, etc. At the wholesale level, there are interest rates on government bonds, bank bills, corporate bonds, etc.

Krippner says these interest rates all vary over time and by term, and can be found in almost all economies around the world.

He says to help put the multitude of different interest rates in perspective, economists often construct yield curves.

"Put simply, a yield curve is a plot of interest rates or yields with different maturities (but otherwise almost identical characteristics) observed at a single point in time."

The mortgage yield curve connects fixed mortgage rates with maturities of six months and one year to five years. The government and bank yield curve are two all-important wholesale benchmarks for interest rates throughout the economy.

Krippner says the yield curve is a concept that helps provide some perspective to the multitude of different interest rates that exist in modern economies.