It stands for real risk-free rate; the single-period interest rate that would be produced by a completely risk-free security if inflation were assumed be zero. It may be viewed as the rate on short-term Treasury securities (issued by default-free, creditworthy governments) in a world free of inflation. Notwithstanding, this rate is not static, but rather varies over time depending on a set of factors such as the expected rate of return on investments and loans and people’s time preferences for current against future real consumption.
There is no precise measure for a real risk-free rate, but the best possible estimate is the rate of return on indexed Treasury bonds.
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