<p>Net Interest Rate Differential (NIRD) is a macroeconomic indicator that measures the difference between a country's domestic interest rates and those of a major foreign currency. It's a key factor in international finance, influencing capital flows and exchange rates.</p>

<h2>How It Works</h2>
<p>The NIRD is calculated as:</p>
<ul>
  <li>Domestic Interest Rate - Foreign Interest Rate</li>
</ul>
<p>For instance, if the U.S. interest rate is 3% and the Eurozone's is 1%, the NIRD would be 2%.</p>
<p>This differential can drive capital flows. If NIRD is positive (domestic rates are higher), investors may prefer domestic assets, appreciating the domestic currency. Conversely, a negative NIRD may lead to capital outflows and currency depreciation.</p>

<h2>Why It Matters</h2>
<p>The NIRD plays a crucial role in monetary policy and exchange rate dynamics. For example, in 2014, the U.S. Federal Reserve announced it would reduce its quantitative easing program, causing a positive NIRD with the Eurozone. This led to capital inflows into the U.S., strengthening the dollar and putting downward pressure on the euro.</p>