Long-term investment with stochastic interest and inflation rates: The need for inflation-indexed bonds

2017 ◽  
Vol 67 ◽  
pp. 228-247
Author(s):  
Farid Mkaouar ◽  
Jean-Luc Prigent ◽  
Ilyes Abid
Keyword(s):  
Indexed Bonds ◽  
Inflation Rates ◽  
Stochastic Interest

scholarly journals Relevance of Low Inflation in the Southeastern European Countries

2016 ◽  
Vol 5 (2) ◽  
pp. 41-63
Author(s):  
Slobodan Lakić ◽  
Damir Šehović ◽  
Mimo Drašković
Keyword(s):  
Exchange Rates ◽  
Psychological Factors ◽  
Negative Impact ◽  
Multinational Companies ◽  
East Europe ◽  
South East Europe ◽  
Inflation Rates ◽  
Exchange Regime ◽  
Flexible Exchange Rates

Abstract The paper starts from the assumption that the significant reduction of the inflation problem is a result of the long-term dynamics of economic growth in countries with developing markets and, as a result, operational inability of multinational companies to increase accumulation through the policy of raising prices by creating space for their full expansion. We believe that in such circumstances civil theories on the causes of inflation are dominantly of class character. We check negative repercussions of low inflation on the examples of the countries of South-East Europe, in the regimes with fixed and flexible exchange rates, and with different strategies of monetary policy. We conclude that destructive implications of the financial crisis and psychological factors have a negative impact on a sustainable low-inflation environment, regardless of the monetary-exchange regime. We propose that low and stable inflation rates can be followed by a series of negative implications for the overall economic system, which our analysis of the observed countries proves.

scholarly journals THE DETERMINATION OF FINANCIAL STRUCTURE IN AGRICULTURE, FORESTRY AND FISHING INDUSTRY IN SELECTED COUNTRIES OF CENTRAL AND EASTERN EUROPE

2021 ◽  
Vol 24 (3) ◽  
pp. 58-78
Author(s):  
Petra Růčková ◽  
Nicole Škuláňová
Keyword(s):  
Interest Rates ◽  
Eastern Europe ◽  
Central And Eastern Europe ◽  
Current Knowledge ◽  
Generalized Method Of Moments ◽  
Financial Structure ◽  
Fishing Industry ◽  
Inflation Rates

Every economic sector, every single industry, every economy, and even every firm has its specific financial structure. Given that it is not possible to examine thousands of individual companies for scientific purposes, it is necessary to at least examine the differences between individual sectors, industries and countries. At the same time, the formation and optimization of the financial structure is influenced by a myriad of diverse factors that financial managers should take into account in their decisions. Thanks to these facts, more and more researches had been created for over half a century. This research expands knowledge in seven selected countries of Central and Eastern Europe – the Visegrád Group, Bulgaria, Slovenia and Romania. The aim of the research is to evaluate, based on the Generalized Method of Moments, the relationship between the six selected factors and the indebtedness level in companies belonging to the agricultural, forestry and fishing industry. The subject of the research is medium, large and very large companies during the years 2009 to 2016. The research deals with the influence of profitability, liquidity, asset structure, economic development, inflation and interest rates on the total, long-term and short-term indebtedness of companies. The main finding of the research is that companies are influenced by both internal and external determinants. However, even though the industry should be neutral, external determinants – GDP growth rates, inflation rates and interest rates – have a more significant impact on the debt level. The results of this research will not only extend current knowledge in the field of corporate finance, but at the same time, the results may be stimulating in setting support rules for public administration and even European institutions, as the selected industry is strongly linked to subsidy policies.

Matched-Long Term Maturity Stock and Bond Returns in International Markets

2002 ◽  
Vol 46 (2) ◽  
pp. 45-53
Author(s):  
Nusret Cakici ◽  
Mitchell Kellman ◽  
Elli Kraizberg
Keyword(s):  
Stock Returns ◽  
Average Rate ◽  
International Markets ◽  
Strong Positive Correlation ◽  
Bond Yields ◽  
Cross Sectional ◽  
Inflation Rates ◽  
Bond Returns ◽  
Sectional Analysis

This paper examines the relationship between real stock returns and matched-maturity long-term bond yields for 16 countries. We find a strong positive correlation between real stock returns and corresponding matched-maturity long-term bond returns for every country in the sample. Our findings also indicate that the volatility of long term real stock returns is closely related to the volatility of long term real bond yields. Finally, an additional cross-sectional analysis indicates that the sensitivity of real stock returns to real bond yields in each country is negatively related to the average rate of inflation and the coefficient of variation of these inflation rates.

scholarly journals Long-Term Relationship between Inflation and Public Sector Deficit in the Turkish Economy and its Macroeconomic Implications (1975-2014)

2016 ◽  
Vol 8 (4(J)) ◽  
pp. 109-122
Author(s):  
Atilla Gökçe ◽  
Umut Ãakmak
Keyword(s):  
Public Sector ◽  
The Public ◽  
Theoretical Literature ◽  
Turkish Economy ◽  
Inflation Rates ◽  
Public Sector Deficit ◽  
Macroeconomic Implications ◽  
Macro Variables ◽  
The Relationship

The process of deterioration in the fundamentals, in particular those related to inflation and the public sector deficits, that had started in the 1980's have accelerated in the 1990's. Meanwhile two way causative relations seem to have appeared between the fluctuations of some fundamentals. In this context, this paper examines the long term relationship between inflation and the public sector deficit and provides an analysis of the macro dynamics that derive from this relationship. Following a summary of the theoretical literature on the relationship between inflation and the public sector deficit, the behavior of these two variables in the 1975-2014 periods are delineated and an analysis of their relationship to some selected macro-variables is presented. The most important result of this article is that high and chronic inflation rates are one of the responsible of deterioration which appeared on the main economic variables particularly in the public sector balance. Similarly, in the 2000’s, on the basis of positive developments in the public balance lies in falling inflation rates quickly and permanently.

Variable Lifetime Annuities: Can You Live Long Enough To Receive Fair Value?

2011 ◽  
Vol 15 (2) ◽  
pp. 49
Author(s):  
Ronald A. Milne ◽  
Glenn Vent
Keyword(s):  
Effective Means ◽  
Fair Value ◽  
Retirement Income ◽  
Rates Of Return ◽  
Variable Annuities ◽  
Advantages And Disadvantages ◽  
Inflation Rates ◽  
Retirement Funds ◽  
To Receive

<span>This article presents an analysis of variable lifetime annuities and quantifies the advantages and disadvantages associated with this type of instrument. Given recent long-term rates of return and current low inflation rates, variable annuity contracts provide an effective means of compensating for inflation. An individual only needs to invest a small portion of retirement funds in variable annuities to protest the entire portfolio against the risk of long-term inflation without the risk of having ones entire retirement income based on variable annuities.</span>

scholarly journals Who Should Buy Long-Term Bonds?

2001 ◽  
Vol 91 (1) ◽  
pp. 99-127 ◽  
Author(s):  
John Y Campbell ◽  
Luis M Viceira
Keyword(s):  
Interest Rates ◽  
Portfolio Choice ◽  
Conventional Wisdom ◽  
Recursive Utility ◽  
Stochastic Interest Rates ◽  
Inflation Risk ◽  
Stochastic Interest ◽  
Intertemporal Hedging ◽  
Asset Demand

According to conventional wisdom, long-term bonds are appropriate for conservative long-term investors. This paper develops a model of optimal consumption and portfolio choice for infinite-lived investors with recursive utility who face stochastic interest rates, solves the model using an approximate analytical method, and evaluates conventional wisdom. As risk aversion increases, the myopic component of risky asset demand disappears but the intertemporal hedging component does not. Conservative investors hold assets to hedge the risk that real interest rates will decline. Long-term inflation-indexed bonds are most suitable for this purpose, but nominal bonds may also be used if inflation risk is low. (JEL G12)

scholarly journals Long-Term Returns in Stochastic Interest Rate Models: Applications

2000 ◽  
Vol 30 (1) ◽  
pp. 123-140 ◽  
Author(s):  
Griselda Deelstra
Keyword(s):  
Brownian Motion ◽  
Interest Rate ◽  
Stochastic Interest Rate ◽  
Interest Rate Models ◽  
Monetary Policies ◽  
Brownian Motion With Drift ◽  
Convergence Results ◽  
Stochastic Interest ◽  
Explicit Formulae

AbstractWe extend the Cox-Ingersoll-Ross (1985) model of the short interest rate by assuming a stochastic reversion level, which better reflects the time dependence caused by the cyclical nature of the economy or by expectations concerning the future impact of monetary policies. In this framework, we have studied the convergence of the long-term return by using the theory of generalised Bessel-square processes. We emphasize the applications of the convergence results. A limit theorem proves evidence of the use of a Brownian motion with drift instead of the integral . For practice, however, this approximation turns out to be only appropriate when there are no explicit formulae and calculations are very time-consuming.

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