Nonparametric cointegration analysis of the nominal interest rate and expected inflation rate

2003 ◽  
Vol 81 (3) ◽  
pp. 349-354 ◽  
Author(s):  
Daiki Maki
Keyword(s):  
Interest Rate ◽  
Inflation Rate ◽  
Cointegration Analysis ◽  
Nominal Interest Rate ◽  
Expected Inflation

Possible Misinterpretations of Equivalent Annual Incomes in Inflationary Times

1987 ◽  
Vol 4 (4) ◽  
pp. 210-211
Author(s):  
W. David Klemperer
Keyword(s):  
Interest Rate ◽  
Real Interest Rate ◽  
Inflation Rate ◽  
Present Value ◽  
Expected Inflation

Abstract Equivalent annual incomes (EATs) are often computed to compare investments with similar size but different lives. One common form of EAT fails to readily illustrate that before-tax present values of new projects should not change with inflationary expectations, given the same real interest rate. This type of EAI also fails to reflect reduction in after-tax present value of new projects as expected inflation rises. An EAI formulation is suggested that eliminates these problems and assures correct project rankings regardless of the inflation rate. North. J. Appl. For. 4:210-211, December 1987.

Fisher Effect in Pakistan

1999 ◽  
Vol 38 (2) ◽  
pp. 153-166 ◽  
Author(s):  
Hamid Hasan
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Inflation Rate ◽  
Banking Sector ◽  
Rational Expectation ◽  
Nominal Interest Rate ◽  
Complete Replacement ◽  
Long Run ◽  
Fisher Hypothesis ◽  
Savings Rate

This paper attempts to test the validity of the Fisher Hypothesis (FH) in Pakistan by investigating the long-run relationship between interest rate and inflation rate applying cointegration analysis. The FH has serious implications for debtors and creditors in an inflation prone economy since inflationary expectations influence nominal interest rate. Moreover, the effectiveness of monetary policy and efficiency in banking sector has direct bearing on the long-run relationship between nominal interest rate and expected inflation rate. Inflationary expectation has been modeled using adaptive and rational expectation approaches and sensitivity of the result to expectation formation has been compared. The paper finds the long-run relationship between nominal interest rate and inflation rate and accepts the partial Fisher Hypothesis. This result suggests that interest rate does not fully cover or accurately anticipate inflation, which implies that bank deposits deteriorate over time. The result further implies that monetary policy may not be effective in such a situation and households’ savings rate may suffer a decline. The acceptance of partial Fisher Hypothesis in case of rational expectation suggests that the rate of interest does not reflect all relevant information and real interest rate does not exhibit random walk behaviour, which is indicative of inefficiency in banking sector. The analysis clearly shows the failure of interest rate as a hedge against inflation and as a predictor of inflation. Therefore, the paper recommends innovation and financial engineering for better alternative especially in banking. The paper also recommends the growth and encouragement of equity market vis-à-vis prevalent debt-biased market. Finally, the paper advocates the complete replacement of traditional credit-based banking by more efficient trade-based banking in Pakistan.

scholarly journals Analyse and Survey Variables of Macroeconomic Effects on Credit Risk of Bank Mellat

2016 ◽  
Vol 5 (1) ◽  
pp. 143
Author(s):  
Majid Lotfi Ghahroud
Keyword(s):  
Growth Rate ◽  
Panel Data ◽  
Interest Rate ◽  
Credit Risk ◽  
Inflation Rate ◽  
Nominal Interest Rate ◽  
Series Data ◽  
Gdp Growth ◽  
Financing System ◽  
The Impact

Trying to identify, measure and manage credit risk in the banking system is crucial. Given that on the one hand financing system of the country is bank-based and on the other hand lack of proper investigation in the credit risk area lead to a reduction in the allocation of resources in the form of loans and has been increased the non-performing loan. Therefore, concerning about credit risk and its reduction strategies has grown. In this study attempted to examine the impact of macro-economic features, such as GDP, inflation, rate of GDP growth, imports goods and final services, rate of nominal interest, amount of credit risk in the last period and the growth rate of facility to be addressed in Credit risk of the Mellat Bank.Moreover, the effects of macroeconomic conditions on credit risk are investigated. In this regard, credit risk of 52 active branches of Mellat Bank with variables such as GDP growth, GDP rates, inflation ,credit growth and nominal interest rate since 1386 to 1391 has been measured by using panel data. To do this, combination of cross-sectional and time-series data (panel data) are used. That means relation between the variables evaluated and tested by using econometric methods such as data compilation methodology (panel data). To estimate the model, to select the best model of conventional panel data, fixed effects and random effects, the F and Housman tests will be done. In this regard, E-views software utilized and Excel for calculation of variables has been used. Based on the results of research the effect of nominal interest rate, facility growth rate and the grow rate of GDP on the credit risk is significant and positive in contrast, the inflation rate has had a negative effect on credit risk.

Short-Term Output Fluctuations in Poland: An Application of the Is-Mp-As Model

2005 ◽  
Vol 49 (2) ◽  
pp. 44-50
Author(s):  
Yu Hsing
Keyword(s):  
Interest Rate ◽  
Stock Prices ◽  
Inflation Rate ◽  
Policy Implications ◽  
Short Term ◽  
Expected Inflation ◽  
Output Fluctuations ◽  
National Bank ◽  
The Interest Rate ◽  
Expected Outcomes

This paper examines output fluctuations in Poland based on an extended IS-MP-AS model (Romer, 2000) and the Taylor rule (1993, 1998, 1999). Empirical results show that real output is negatively influenced by the expected inflation rate, the deficit/GDP ratio, and the euro interest rate while it is positively affected by real appreciation and stock prices. Policy implications are that expansionary fiscal policy would not generate expected outcomes and that the conventional approach of currency devaluation to stimulate the economy may not apply to Poland due to the National Bank of Poland's potential reaction to raise the interest rate.

scholarly journals Monetary Policy and Multiple Equilibria

2001 ◽  
Vol 91 (1) ◽  
pp. 167-186 ◽  
Author(s):  
Jess Benhabib ◽  
Stephanie Schmitt-Grohé ◽  
Martín Uribe
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Inflation Rate ◽  
Multiple Equilibria ◽  
Price Level ◽  
Nominal Interest Rate ◽  
Rate Feedback ◽  
Fiscal Regime ◽  
Increasing Function ◽  
The Way

This paper characterizes conditions under which interest-rate feedback rules that set the nominal interest rate as an increasing function of the inflation rate induce aggregate instability by generating multiple equilibria. It shows that these conditions depend not only on the monetary-fiscal regime (as emphasized in the fiscal theory of the price level) but also on the way in which money is assumed to enter preferences and technology. It provides a number of examples in which, contrary to what is commonly believed, active monetary policy gives rise to multiple equilibria and passive monetary policy renders the equilibrium unique. (JEL E52, E31, E63)

scholarly journals ARDL Bounds Testing Approach to Cointegration: A Re-Examination of Augmented Fisher Hypothesis in an Open Economy

2014 ◽  
Vol 2 (2) ◽  
pp. 103-114
Author(s):  
R. Santos Alimi
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Open Economy ◽  
Nominal Interest Rate ◽  
Fisher Effect ◽  
Bounds Testing ◽  
Expected Inflation ◽  
Long Run ◽  
Fisher Hypothesis ◽  
Effective Exchange

This paper investigated the relationship between expected inflation and nominal interest rates in Nigeria and the extent to which the Fisher effect hypothesis holds, for the period 1970-2012. We attempted to advance the field by testing the traditional closed-economy Fisher hypothesis and an augmented Fisher hypothesis by incorporating the foreign interest rate and nominal effective exchange rate variable in the context of a small open developing economy, such as, Nigeria. We applied ARDL bound testing, vector error correction (VECM) and stability of the functions was also tested by CUSUM and CUSUMSQ. We found that full Fisher hypothesis does not hold but there is a Fisher effect in the case of Nigeria over the period under study. In the context of an open economy, the study showed that aside expected inflation, the international variables - foreign interest and nominal effective exchange rates - contain information that predict the nominal interest rate and it also suggested a feed-back mechanism between nominal interest rate and foreign interest rate. Finally, CUSUM test confirms the long-run relationships between the variables and also shows the stability of the coefficients.

scholarly journals Government Spending Multipliers under the Zero Lower Bound: Evidence from Japan

2018 ◽  
Vol 10 (3) ◽  
pp. 247-277 ◽  
Author(s):  
Wataru Miyamoto ◽  
Thuy Lan Nguyen ◽  
Dmitriy Sergeyev
Keyword(s):  
Interest Rate ◽  
Lower Bound ◽  
Government Spending ◽  
Private Consumption ◽  
Nominal Interest Rate ◽  
Zero Lower Bound ◽  
Output Multiplier ◽  
Expected Inflation ◽  
Normal Period ◽  
New Evidence

Using a rich dataset on government spending forecasts in Japan, we provide new evidence on the effects of unexpected changes in government spending when the nominal interest rate is near the zero lower bound (ZLB). The on-impact output multiplier is 1.5 in the ZLB period and 0.6 outside of it. We estimate that government spending shocks increase both private consumption and investment during the ZLB period, but crowd them out in the normal period. There is evidence that expected inflation increases more in the ZLB period than in the normal period. (JEL E21, E22, E23, E31, E43, E52, E62)

scholarly journals AN EMPIRICAL STUDY OF THE FISHER EFFECT AND THE DYNAMIC RELATION BETWEEN NOMINAL INTEREST RATE AND INFLATION IN SINGAPORE

2009 ◽  
Vol 54 (01) ◽  
pp. 75-88 ◽  
Author(s):  
KING FUEI LEE
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Inflation Rate ◽  
Nominal Interest Rate ◽  
Impulse Response Functions ◽  
Fisher Effect ◽  
Dynamic Relationship ◽  
Long Run ◽  
Price Puzzle ◽  
Nominal Interest Rates

The Fisher Effect postulated that real interest rate is constant, and that nominal interest rate and expected inflation move one-for-one together. This paper employs Johansen's method to investigate for the existence of a long-run Fisher effect in the Singapore economy over the period 1976 to 2006, and finds evidence of a positive relationship between nominal interest rate and inflation rate while rejecting the notion of a full Fisher Effect. The dynamic relationship between nominal interest rate and inflation rate is also examined from the error-correction models derived, and the analysis is extended to investigate the impulse response functions of inflation and nominal interest rates where we discover the presence of the Price Puzzle in the Singapore market.

scholarly journals Do Macroeconomic Variables Affect Stock Market Performance? A Case Study of DSEX and DS30 Index of Dhaka Stock Exchange

2019 ◽  
Vol 9 (3) ◽  
pp. 182
Author(s):  
Emran Hasan ◽  
Shahanawaz Sharif
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Stock Market ◽  
Inflation Rate ◽  
Market Performance ◽  
Cointegration Analysis ◽  
Causality Test ◽  
Treasury Bill ◽  
Macroeconomic Variables ◽  
Stock Market Performance

Stock market performance– being the linchpin of an economy, requires variations in policies concerning macroeconomic variables. Keeping this in notion, this research assays the empirical association between stock market performance and a few selected macroeconomic variables namely interest rate, exchange rate, inflation rate, and 91-days Treasury bill rate using monthly data ranging from January 2013 to October 2018. Employing Johansen Cointegration analysis, the results of the study suggest that exchange rate and treasury bill rate are positive whereas interest rate and inflation rate are negatively associated with better stock market performance. Granger causality test implies bidirectional causality – between the interest rate and DS30 as well as DSEX while unidirectional causality is evident for both the indices which are running from interest rate, inflation and exchange rate to stock market performance. Formulation and implementation of prudent policies regarding the studied macroeconomic variables can lead to a healthy stock market outcome.

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