LIMITS TO ARBITRAGE AND INTEREST RATES: A DEBATE AMONG KEYNES, HAWTREY, AND HICKS

This paper deals with a debate among Ralph George Hawtrey, John Richard Hicks, and John Maynard Keynes concerning the capacity of the central bank to influence the short-term and the long-term rates of interest. Both Hawtrey and Keynes considered the central bank’s ability to influence short-term rates of interest. However, they do not put the same emphasis on the study of the long-term rates of interest. According to Keynes, long-term rates are influenced by future expected short-term rates (1930, 1936), whereas for Hawtrey ([1932] 1962, 1937, 1938), long-term rates are more dependent on the business cycle. Short-term rates do not have much effect on long-term rates, according to Hawtrey. In 1939, Hicks enters the controversy, giving credit to both Hawtrey’s and Keynes’s theories, and also introducing limits to the operations of arbitrage. He thus presented a nuanced view.

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Journal of the History of Economic Thought Preprints - Limits to Arbitrage and Interest Rates: A Debate Between Keynes, Hawtrey and Hicks

10.31235/osf.io/7f2yv ◽

2018 ◽

Author(s):

Lucy BRILLANT

Keyword(s):

Business Cycle ◽

Central Bank ◽

Interest Rates ◽

Economic Thought ◽

History Of Economic Thought ◽

Short Term ◽

Limits To Arbitrage ◽

History Of ◽

The Business Cycle

This paper deals with a debate between Hawtrey, Hicks and Keynes concerning the capacity of the central bank to influence the short-term and the long-term rates of interest. Both Hawtrey and Keynes considered the central bank’s ability to influence short-term rates of interest. However, they do not put the same emphasis on the study of the long-term rates of interest. According to Keynes, long-term rates are influenced by future expected short-term rates (1930, 1936), whereas for Hawtrey (1932, 1937, 1938), long-term rates are more dependent on the business cycle. Short-term rates do not have much effect on long-term rates according to Hawtrey. In 1939, Hicks enters the controversy, giving credit to both Hawtrey’s and Keynes’s theories, and also introducing limits to the operations of arbitrage. He thus presented a nuanced view.

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Macroeconomic Synchronization Between G3 Countries

German Economic Review ◽

10.1111/1468-0475.00055 ◽

2002 ◽

Vol 3 (2) ◽

pp. 137-153 ◽

Cited By ~ 3

Author(s):

Amado Peirό

Keyword(s):

Business Cycle ◽

Interest Rates ◽

Short Term ◽

The Us ◽

Production Prices ◽

Over Time

AbstractThis paper studies the existence of a world business cycle by examining quarterly and annual comovements in production, prices and interest rates in the three main world economies: Germany, Japan and the US. In accordance with earlier studies, contemporaneous relationships clearly dominate short-term dynamics. The evidence indicates the existence of strong comovements in prices and long-term interest rates, and, to a lesser degree, in GDP and short-term interest rates. They are, however, rather unstable over time.

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Monetary and fiscal policy mix connectivity towards the business cycle in Indonesia

Jurnal Perspektif Pembiayaan dan Pembangunan Daerah ◽

10.22437/ppd.v9i2.11489 ◽

2021 ◽

Vol 9 (2) ◽

pp. 139-152

Author(s):

Regina Niken Wilantari ◽

Imro'atul Husna Afriani

Keyword(s):

Fiscal Policy ◽

Business Cycle ◽

Exchange Rates ◽

Money Supply ◽

Series Data ◽

Policy Mix ◽

Short Term ◽

The Business Cycle ◽

Monetary And Fiscal Policy

This research is based on the magnitude of the influence of monetary and fiscal aspects, namely the money supply, exchange rates, government spending, and taxes on the business cycle in Indonesia. This study aims to examine the effect of the connection between the monetary and fiscal policy mix on the business cycle in Indonesia. For analysis purposes, secondary data was used in the form of time-series data from 1970–2017. The method used is the Vector Error Correction Model (VECM) to see long-term and short-term relationships. In the estimation results, it is found that in the long-term period, the monetary variables (money supply and exchange rates) and fiscal variables (government expenditures and taxes) have a significant positive effect on the business cycle in Indonesia.In contrast, the monetary variables that have a significant effect in the short-term period are only the amount variable money supply. There are no fiscal variables that have a significant effect on the business cycle in Indonesia. The interaction of monetary and fiscal policies is still effectively implemented in Indonesia.

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Tax Competition, Investment Irreversibility and the Provision of Public Goods

German Economic Review ◽

10.1111/geer.12058 ◽

2015 ◽

Vol 16 (4) ◽

pp. 408-421 ◽

Cited By ~ 1

Author(s):

Michele Moretto ◽

Sergio Vergalli ◽

Paolo M. Panteghini

Keyword(s):

Business Cycle ◽

Public Goods ◽

Tax Competition ◽

Capital Accumulation ◽

Business Risk ◽

Short Term ◽

The Business Cycle ◽

Changes Over Time ◽

Over Time

AbstractThis article studies the effects of tax competition on the provision of public goods under business risk and partial irreversibility of investment. As will be shown, the provision of public goods changes over time and also depends on the business cycle. In particular, under source-based taxation, in the short term, public goods can be optimally provided during a downturn. The converse is true during a recovery: in this case, they are underprovided. In the long term, however, tax competition does not affect capital accumulation. This means that the provision of public goods is unaffected by taxation.

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Measuring the Sensitivity of Net Interest Paid to the Business Cycle and to Inflation

Public Finance Quarterly ◽

10.1177/109114218701500301 ◽

1987 ◽

Vol 15 (3) ◽

pp. 235-258 ◽

Cited By ~ 1

Author(s):

Thomas M. Holloway

Keyword(s):

Business Cycle ◽

Interest Rates ◽

Analytical Framework ◽

Budget Deficits ◽

Factors Affecting ◽

Short Run ◽

Sample Application ◽

Federal Debt ◽

The Business Cycle

Net interest paid has been one of the most rapidly growing components of federal government expenditures since 1970. Unlike other components of the budget, public policy actions can have little effect on its rise—especially in the short run. For this reason, it is important to examine the forces “automatically” affecting net interest paid. This article examines the sources of change in net interest paid and provides an analytical framework to estimate the automatic effects of the business cycle and inflation. The framework incorporates the most important factors affecting net interest paid, including interest rates, budget deficits, and outstanding stocks (short-term and long-term debt and direct loans), and highlights the simultaneous relationship between net interest paid and changes in net debt (federal debt outstanding less direct loans outstanding). A sample application of the analytical framework is discussed.

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Joint Dynamics Of The U.S. Treasury Maturity Rates: Policy Implications For Central Banks

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v9i5.4237 ◽

2011 ◽

Vol 9 (5) ◽

pp. 1

Author(s):

Omid Sabbaghi

Keyword(s):

Central Bank ◽

Interest Rates ◽

Multivariate Time Series ◽

Policy Implications ◽

Impulse Responses ◽

Short Term ◽

Treasury Market ◽

Short Horizon ◽

The U.S

This paper examines whether there is a direct relationship between yields of differing maturities for the U.S. Treasury market. The hypothesis that long horizon rates may help to predict future short horizon rates, in addition to short horizon rates helping to predict future long horizon rates, provides the motivation for the present study. The proposed inter-relationship between the different interest rates exhibits important implications for central bank policy-making. Employing a multivariate time-series analysis, we find that spreads in the short-term rate tend to rise (fall) in response to rises in prior short-term (long-term) rate spreads. Additionally, spreads in the long term rates tend to decrease in response to prior rises in the 1 year Treasury rate spread. Finally, positive impulse responses for long term spreads largely derive from shocks to shorter term maturity spreads, while shocks to longer term maturity rates result in gradual negative impulse responses for maturity rates of shorter horizons. In sum, this paper provides evidence of important feedback relationships across the maturity spectrum in the U.S. Treasury market. An understanding of the maturity rate dynamics is crucial for future central bank interventions and for the pricing of options and other related financial instruments.

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Determinants of Aggregate Credit Flows to U.S. Corporate and Noncorporate Sector

SAGE Open ◽

10.1177/2158244018823082 ◽

2019 ◽

Vol 9 (1) ◽

pp. 215824401882308

Author(s):

P. Lakshmi ◽

M. Thenmozhi ◽

Nikhil Varaiya

Keyword(s):

Business Cycle ◽

Multivariate Regression ◽

The United States ◽

Capital Requirements ◽

Short Term ◽

Fund Flow ◽

Specific Factors ◽

The Business Cycle ◽

Long Term Behavior

This article explores the financial accounts of the United States to analyze the synchronicity in bank and nonbank credit flows with the fund flow patterns of U.S. nonfinancial corporate and noncorporate sector. We differ from prior studies and examine the long-term behavior from 1952 to 2015 in relation to peaks and troughs in business cycle, sector-specific factors, and macroeconomic variations. We find that the nonbank credit flows have evolved as a significant source of credit for corporate and noncorporate sector and exhibit higher levels of synchronicity during the period after 1980. The high synchronicity of nonbank credit flows necessitates sufficient resilience in the business cycle upsurge through countercyclical actions, specifically in the noncorporate sector. Multivariate regression results reveal that noncorporate sector relies more on nonbank credit for short-term cash and working capital requirements, whereas corporate sector opts nonbank credit for long-term investments. We also find evidence of relatively higher inter-sectoral impact of business cycle shocks between corporate and noncorporate sector from 1980 to 2015.

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