scholarly journals Fiscal sustainability and low interest rates: what an indicator can(’t) tell

Empirica ◽  
2021 ◽  
Author(s):  
Martin Werding
Keyword(s):  
Growth Rate ◽  
Fiscal Policy ◽  
Interest Rates ◽  
Fiscal Sustainability ◽  
Demographic Ageing ◽  
Eu Member States ◽  
Low Interest Rates ◽  
Ministry Of Finance ◽  
Sustainability Report

AbstractThe indicator that is commonly used to assess the long-term fiscal sustainability of public finances in EU member states (“S2”) is also defined if government borrowing rates are assumed to be permanently lower than the growth rate of GDP. Under these circumstances, however, it no longer provides a reliable orientation for fiscal policy. I illustrate these findings based on simulations prepared for the Fifth Sustainability Report published by the German Federal Ministry of Finance. In addition, I discuss the interpretation of the indicator in a low-interest environment and the assumption that relevant interest rates may continue to be low if there are substantial challenges for fiscal sustainability, e.g., through demographic ageing.

scholarly journals Loose Monetary Policy and Corporate Investment of Manufacturing Firms in the Czech Republic

2018 ◽  
Vol 18 (4) ◽  
pp. 371-385
Author(s):  
Veronika Kajurová ◽  
Dagmar Linnertová
Keyword(s):  
Monetary Policy ◽  
Czech Republic ◽  
Interest Rates ◽  
Corporate Investment ◽  
Manufacturing Firms ◽  
Investment Activity ◽  
The Czech Republic ◽  
Low Interest Rates ◽  
Negative Effect

Abstract The aim of the paper is to evaluate the effects of loose monetary policy on corporate investment of manufacturing firms in the Czech Republic during the period between 2006 and 2015. The main focus of the paper is on the effect of low interest rates on investment activity of Czech firms; additionally, the effects of interactions between interest rate and other firm-specific variables are investigated. The results indicate that corporate investment is positively associated with firm size, investment opportunities, and long term debt. Also, a negative effect of the cash position is found. Further, the findings show that monetary policy is a significant determinant of firm investment activity: when the monetary policy is loose, investment is positively affected. Furthermore, differences in the determinants of investment between highly and low leveraged firms were revealed.

scholarly journals Assessing the Fiscal Sustainability of Government Finances in European Countries

2013 ◽  
Vol 52 (1) ◽  
pp. 87-93
Author(s):  
Yuriy Melnykov
Keyword(s):  
Growth Rate ◽  
Time Series ◽  
Interest Rate ◽  
Unit Root ◽  
Statistical Approach ◽  
Fiscal Sustainability ◽  
European Countries ◽  
Gdp Growth ◽  
Gdp Growth Rate

This paper analyses the fiscal sustainability of government finances in the 27 EU countries and Norway using an empirical, statistical approach and ADF tests for a unit root in the time series of the differences between the GDP growth rate and the long-term interest rate, and the primary balance.

scholarly journals The Unpleasant Arithmetic of the Taylor Rule

2020 ◽  
Vol 8 (3) ◽  
pp. p89
Author(s):  
Alejandro Rodriguez-Arana
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Phillips Curve ◽  
Taylor Rule ◽  
Independent Component ◽  
Elasticity Of Substitution ◽  
Interest Rate Rule

This paper analyzes the effect of a monetary policy that raises the reference interest rate in order to reduce inflation in a situation where the fiscal policy parameters remain constant. In an overlapping generation’s model and in the presence of an accelerationist Phillips curve and a Taylor rule of interest rates, it is observed that increasing the independent component of said rule leads to a solution that at least in a large number of cases is unstable. In the case where the elasticity of substitution is greater than one, inflation falls temporarily, but then it can increase in an unstable manner. One way to achieve stability is to establish an interest rate rule where Taylor’s principle is not met. However, in this case many times the increase in the independent component of this rule will generate greater long-term inflation.

scholarly journals A state-owned bank for small farmers in Chile, c.1926-1953

2021 ◽  
Vol 6 (2) ◽  
pp. 87-125
Author(s):  
Ignacio González-Correa ◽  
Manuel Llorca-Jaña
Keyword(s):  
Interest Rates ◽  
Agricultural Production ◽  
Agricultural Development ◽  
Annual Reports ◽  
Small Farmers ◽  
Development Bank ◽  
State Institutions ◽  
Social Mission ◽  
Low Interest Rates

This article deals with the creation and operations of the first agricultural development bank ever created in Chile, the Caja de Crédito Agrario (CCA), founded in 1926, in operations until 1953. The main sources are the annual reports of CCA from 1933 to 1951. The main contributions are to show first that the CCA was instrumental to provide subsidized long-term capital to small farmers in Chile to promote agricultural production, but that also had a “social mission”. The CCA soon became a protagonist within the local financial market. Given the lack of knowledge about the modus operandi of development banks in Latin America, we provide the first account of the management and financial activities of the CCA. We show that the management structure of the firm, and in particular its strategy of decentralization, was key to explain its success. Likewise, the CCA managed successfully to raise increasing amounts of capital from other state institutions at low interest rates, thus being able to cover its increasing loan operations.

scholarly journals Fiscal Sustainability in Poland: How Did the Public Policy Shift of 2016–2019 Impact the Country’s Long-Term Sustainability?

Ekonomista ◽  
2021 ◽  
Vol 6 ◽  
Author(s):  
Maciej WYSOCKI ◽  
Cezary WÓJCIK
Keyword(s):  
Fiscal Policy ◽  
Policy Instruments ◽  
Fiscal Sustainability ◽  
Social Programs ◽  
Social Expenditure ◽  
Significant Deterioration ◽  
The Public ◽  
Policy Shift ◽  
The Government

In 2016–2019 Poland experienced a major social and fiscal policy shift: new government decreased the statutory retirement age and launched several new social programs, including the sweeping Family 500+ program under which social expenditure on family and children support increased suddenly from 1.5% to nearly 3% of GDP. Moreover, VAT gap reduction policies have been implemented swiftly. The new policy move became highly controversial. Many economists argued that overall it would lead to a significant deterioration of long-term fiscal sustainability. The government argued in turn that the new program was well financed by a complementary policy of VAT gap reduction and saw no risk to country’s fiscal sustainability. This paper provides one of the first evidence of the adverse effect of the policy shift on long-term fiscal sustainability. The analysis reveals that fiscal sustainability parameters have deteriorated significantly after 2016. Overall, the estimations presented in the paper show that in the period of 2016–2019 fiscal sustainability parameters may have been the lowest since Poland joined the EU in 2004. While these results should be treated with caution as they draw on very recent time series, the deterioration of Poland’s fiscal sustainability raises a pertinent policy question related to country’s capacity to respond to the COVID-19 pandemic, in particular in terms of the ability to use standard and non-standard fiscal policy instruments and monetary policy tools in response to the shock.

scholarly journals Infrastructure Indices: Comparative Analysis of Performance, Risk and Representation of Global Listed Proxies

2019 ◽  
Vol 65 (3) ◽  
pp. 23-39 ◽  
Author(s):  
Dimitar Lambrev
Keyword(s):  
Interest Rates ◽  
Risk Characteristics ◽  
Low Interest Rates ◽  
Market Beta ◽  
Asset Class ◽  
Infrastructure Investments ◽  
Alternative Sources ◽  
Equity Index ◽  
Analysis Of Performance

Abstract Faced with historically low interest rates, investors are looking further into illiquid assets such as infrastructure in search of alternative sources of income, better diversification and a long-term investment perspective. This paper analyzes the key performance and risk characteristics of the EDHECinfra global unlisted infrastructure equity index when compared to the main global listed infrastructure indices during the 2001-2018 period. The descriptive statistics method is applied to determine the representation of the benchmarks commonly used by investors considering infrastructure investments. For the purpose of the market beta analysis, the MSCI World index is also used as a global equities proxy in a linear regression model. Listed infrastructure is often considered as an income-yielding and defensive equity strategy that provides a liquid proxy for alternative assets (e.g., infrastructure). However, the paper results indicate that the net effect of investing in listed infrastructure remains questionable, even unknown. Recent empirical findings demonstrate divergent stands on benchmarking infrastructure. The high correlation of the main listed infrastructure indices with the broad equity index MSCI World and the inconsistency of research results thus far suggest that infrastructure is an ill-defined investment category within the listed infrastructure space with lacking reliable and useful benchmarking. The commonly used and far-reaching classification of companies with broad industrial nature and business activities that are less relevant to infrastructure may affect the overall representation of the legitimate characteristics of the infrastructure asset class amid the growing enthusiasm among investors.

scholarly journals Does fiscal policy affect interest rates? Evidence from a factor-augmented panel

2016 ◽  
Vol 16 (2) ◽  
Author(s):  
Salvatore Dell’Erba ◽  
Sergio Sola
Keyword(s):  
Fiscal Policy ◽  
Interest Rates ◽  
Real Time ◽  
Oecd Countries ◽  
Frame Work ◽  
Monetary And Fiscal Policy ◽  
Unobservable Factors ◽  
Fiscal Shocks

AbstractThis paper reconsiders the effects of fiscal policy on long-term interest rates employing a factor augmented panel (FAP) to control for the presence of common unobservable factors. We construct a real-time dataset of macroeconomic and fiscal variables for a panel of OECD countries for the period 1989–2013. We find that two global factors – the global monetary and fiscal policy stances – explain more than 60 percent of the variance in the long-term interest rates. Under our frame work, we find that the importance of domestic variables in explaining long-term interest rates is weakened. Moreover, the propagation of global fiscal shocks is larger in economies characterized by macroeconomic and institutional weaknesses.

scholarly journals COVID-19 and Fiscal Policy in the Euro Area

2020 ◽  
Author(s):  
F. Busetto ◽  
Alfonso Dufour ◽  
Simone Varotto
Keyword(s):  
Fiscal Policy ◽  
Interest Rates ◽  
Euro Area ◽  
Financial Stability ◽  
Yield Curves ◽  
Fiscal Constraints ◽  
Debt Levels

In this chapter we document fiscal policy developments in the main euro area economies over the last two decades and highlight the dramatic changes triggered by the COVID-19 pandemic. We analyse how euro area yield curves respond to COVID-19 related expectations of fiscal expansion. We show how fiscal constraints may affect interest rates. Upward pressure on national yields from higher debt levels could compromise fiscal and financial stability in the long-term.

scholarly journals Customers’ expectations from savings products

VUZF Review ◽  
2021 ◽  
Vol 6 (2) ◽  
pp. 4-10
Author(s):  
Stanislav Dimitrov
Keyword(s):  
Interest Rates ◽  
Active Role ◽  
Point Of View ◽  
Ageing Population ◽  
Low Interest Rates ◽  
Cost Efficient ◽  
Changing Attitudes ◽  
Further Development

Customers expect certain characteristics from long-term savings products. Providers are not able to supply all of these characteristics in one product at the same time. In addition, there are changing attitudes of the savers and the requirements to the financial institutions are evolving. The paper is analyzing the customers’ expectations from the long-term savings products. The manuscript is searching answer which are the most important characteristics of the savings products from the point of view of the client. The research is focused on three main areas: which are the customers’ expectations; what is the current environment in the market of savings products and what developments can we expect in the coming years. One of the conclusions is that the providers have to adapt their products to the customers’ expectations in order to succeed and to reach further development of the markets. Another conclusion is that customer centric products will gain greater trust among potential savers. We believe that the successful saving product has to be simple, transparent and cost-efficient. This reflects the surrounding environment of low interest rates, ageing population, increased informational flow, digitalization and alternative products development. To support the savers and the providers it is needed public help, targeting good coverage and constant efforts for active role of the stakeholders in the savings process.

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