A retrospective structural break analysis of the French German interest rate differential in the run-up to EMU

2004 ◽  
pp. 21-49 ◽  
Author(s):  
Jérôme Henry ◽  
Peter McAdam
Keyword(s):  
Interest Rate ◽  
Structural Break ◽  
Run Up

A revisit of the unemployment rate, interest rate, GDP growth and Inflation of Pakistan: Whether Structural break or unit root?

2021 ◽  
Vol 3 (2) ◽  
pp. 80-92
Author(s):  
Sara Muhammadullah ◽  
Amena Urooj ◽  
Faridoon Khan
Keyword(s):  
Interest Rate ◽  
Unemployment Rate ◽  
Unit Root ◽  
Structural Breaks ◽  
Inflation Rate ◽  
Structural Break ◽  
Unit Root Test ◽  
Unit Root Tests ◽  
Gdp Growth ◽  
Macroeconomic Indicators

The study investigates the query of structural break or unit root considering four macroeconomic indicators; unemployment rate, interest rate, GDP growth, and inflation rate of Pakistan. The previous studies create ambiguity regarding the stationarity and non-stationarity of these variables. We employ Zivot & Andrews (1992) unit root test and Step Indicator Saturation (SIS) method for multiple break detection in mean. GDP growth and inflation rate are stationary at level whereas unit root tests fail to reject the null hypothesis of the unemployment rate and interest rate at level. However, Zivot and Andrew unit root test with a single endogenous break indicates that the unemployment rate and interest rate are stationary at level with a single endogenous break. On the other hand, the SIS method reveals that the series are stationary with multiple structural breaks. It is inferred that it is inappropriate to take the first difference of the unemployment rate and interest rate to attain stationarity. The results of this study confirmed that there exist multiple breaks in the macroeconomic variables considered in the context of Pakistan.

scholarly journals Unbundling interest rate and bank credit nexus on income inequality: structural break analysis from Nigeria

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Bosede Ngozi Adeleye
Keyword(s):  
Interest Rate ◽  
Income Inequality ◽  
Real Interest Rate ◽  
Time Series Data ◽  
Structural Break ◽  
Economic Consequences ◽  
Bank Credit ◽  
Series Data ◽  
Content Type ◽  
Distributed Lag

Purpose Income inequality stalls economic growth with undesirable socio-economic consequences. Despite various measures targeted towards reducing the inequality gap, disparities in income distribution persist in Nigeria. Therefore, this study aims to explore a new line of argument to the finance mechanism in reducing income inequality. Design/methodology/approach The study uses time-series data on Nigeria from 1980 to 2015 with analysis conducted using the autoregressive distributed lag-error correction model approach of Pesaran et al. (2001). Findings The results show amongst others that the channel of real interest rate on income inequality is through bank credit, real interest rate has an indirect relationship to income inequality and bank credit has an equalising impact on income inequality when the model is augmented for a structural break. The results show amongst others, that, on average, ceteris paribus, a 1% point increase in the real lending interest rate is associated with a 0.45% decline in the volume of bank credit. Originality/value This paper engages a new line of argument by unbundling how financial intermediation impacts on income inequality. The extant literature submits that finance directly impacts income inequality, whereas this study investigates further to show that interest rate impacts income inequality through bank credit. That is, the transmission mechanism by which finance affects income inequality is modelled and analysed.

Exchange Rates, Interest Parity, and the Carry Trade

2019 ◽  
Author(s):  
Craig Burnside
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Structural Break ◽  
Theoretical Models ◽  
Rate Of Change ◽  
Necessary Condition ◽  
Information Frictions ◽  
High Interest Rate ◽  
Interest Parity

The uncovered interest parity (UIP) condition states that the interest rate differential between two currencies is the expected rate of change of their exchange rate. Empirically, however, in the 1976–2018 period, exchange rate changes were approximately unpredictable over short horizons, with a slight tendency for currencies with higher interest rates to appreciate against currencies with lower interest rates. If the UIP condition held exactly, carry trades, in which investors borrow low interest rate currencies and lend high interest rate currencies, would earn zero average profits. The fact that UIP is violated, therefore, is a necessary condition to explain the fact that carry trades earned significantly positive profits in the 1976–2018 period. A large literature has documented the failure of UIP, as well as the profitability of carry trades, and is surveyed here. Additionally, summary evidence is provided here for the G10 currencies. This evidence shows that carry trades have been significantly less profitable since 2007–2008, and that there was an apparent structural break in exchange rate predictability around the same time. A large theoretical literature explores economic explanations of this phenomenon and is briefly surveyed here. Prominent among the theoretical models are ones based on risk aversion, peso problems, rare disasters, biases in investor expectations, information frictions, incomplete financial markets, and financial market segmentation.

Exchange rate interest rate linkages in India: an empirical investigation

2016 ◽  
Vol 8 (4) ◽  
pp. 443-457 ◽  
Author(s):  
Shruti Shastri ◽  
Swati Shastri
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Capital Flows ◽  
Structural Breaks ◽  
Structural Break ◽  
Unit Root Test ◽  
Empirical Reality ◽  
Content Type ◽  
Long Run

Purpose The purpose of the paper is to examine the linkages between exchange rate and interest rate in India using quarterly data from Q1 of 1996 to Q4 of 2014. Design/methodology/approach Stationarity properties of data are checked using the Augmented Dickey–Fuller (ADF), Dickey–Fuller test with GLS de-trending (DF-GLS) and Kwiatkowski-Phillips-Schmidt-Shin (KPSS) tests and Perron’s unit root test with structural breaks. Johansen Juselius and Gregory Hansen tests are applied to assess cointegration, and block exogeneity test is used to detect causality among variables. Findings The study finds long-run relationship among interest rate, rupee–dollar exchange rate, capital flows, intervention, inflation differential, money supply differentials, output differentials and trade-balance differentials. However, the interest rate does not explain movements in the exchange rate, directly and indirectly, via capital flows. Intervention by the Central Banks to stabilize exchange rate does not have implications for movements in interest rate. Research limitations/implications The study finds capital flows to be insensitive with respect to interest rates and hence thwarts International Monetary Fund ’s (IMF) claim of using interest rates as a tool to stabilize exchange rate. The much-debated conflict between exchange-rate stabilization and control over interest rates also does not hold up to the empirical reality of India. Originality/value The study augments the existing literature by taking into account the problem of structural break in the relationship between interest rate and exchange rate. Three measures of interest rate are used to assess the robustness of results adding to their credibility compared to previous studies.

Interest rate transmission in Greece: Did EMU cause a structural break?

2006 ◽  
Vol 28 (4) ◽  
pp. 453-466 ◽  
Author(s):  
Dionysios P. Chionis ◽  
Costas A. Leon
Keyword(s):  
Interest Rate ◽  
Structural Break ◽  
Rate Transmission

scholarly journals Evaluating the existence of structural change in the Brazilian term structure of interest rate: evidence based on Hansens cointegration models with structural break

2014 ◽  
Vol 8 (2) ◽  
pp. 211
Author(s):  
Emerson F. Marcal ◽  
Pedro L. Valls Pereira
Keyword(s):  
Structural Change ◽  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Risk Premium ◽  
Structural Break ◽  
Sample Period ◽  
Data Set ◽  
Risk Premiums ◽  
Vector Autoregressive

This paper investigates whether there is evidence of struc- tural change in the Brazilian term structure of interest rates. Multivari- ate cointegration techniques are used to verify this evidence. An econo- metric model is estimated which is a Vector Autoregressive Model with Error Correction Mechanism (VECM) with abrupt structural change formulated by Hansen [13]. Two datasets were analysed. The rst one contains a nominal interest rate with maturity up to three years. The second data set focuses on maturity up to one year. The rst data set focuses on a sample period from 1995 to 2010 and the second from 1998 to 2010. The frequency is monthly. The estimated models suggest the existence of structural change in the Brazilian term structure. It was possible to document the existence of multiple regimes using the tech- nique for both databases. The risk premium for dierent spreads varied considerably during the earliest period of both samples and seemed to converge to stable and lower values at the end of the sample period. Long-term risk premiums seemed to converge to international stand- ards, although the Brazilian term structure is still subject to liquidity problems for longer maturities.

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