scholarly journals The interest rate sensitivity of output and prices with different levels of financial inclusion

2019 ◽  
Vol 21 (2) ◽  
pp. 114-130
Author(s):  
Huong Thi Truc Nguyen
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Developing Economies ◽  
Sustainable Growth ◽  
Financial Inclusion ◽  
Content Type ◽  
The Interest Rate ◽  
The Impact ◽  
Panel Vector Autoregressions ◽  
Different Levels

Purpose The purpose of this paper is to evaluate the interest rate (IR) sensitivity of output and prices in developing economies with different levels of financial inclusion (FI) for the period 2007Q1–2017Q4. Design/methodology/approach By using the PCA method to construct an FI index for each country, the author divides the sample into two groups (high and low FI levels). Then, with panel vector autoregressions on per group estimated to assess the strength of the impulse response of output and prices to IR shock. Findings The findings show that the impact of an IR shock on output and inflation is greater in economies with a higher degree of FI. Practical implications The finding indicates the link between FI and the effectiveness of IRs as a monetary policy tool, thereby helping Central banks to have a clearer goal of FI to implement their monetary policy. Originality/value This study emphasizes the important role of FI in the economy. From there, an FI solution is integrated into the construction and calculation of its impact on monetary policy, improving the efficiency of monetary policy transmission, contributing to price stability and sustainable growth.

scholarly journals The impact of Musharakah financing on the monetary policy in the Islamic economy

2018 ◽  
Vol 3 (3/4) ◽  
pp. 139-152
Author(s):  
Hatem Adela
Keyword(s):  
Economic Theory ◽  
Monetary Policy ◽  
Interest Rate ◽  
Economic Activity ◽  
Methodological Framework ◽  
Mathematical Methods ◽  
Content Type ◽  
Return Rates ◽  
The Interest Rate ◽  
The Impact

Purpose This paper aims to contribute to formulating the methodological framework for a paradigm of Islamic economics, using the development of the conventional economics, theoretical and mathematical methods. Design/methodology/approach The study based on the inductive and mathematical methods to contribute to economic theory within the methodological framework for Islamic Economics, by using the return rate of Musharakah rather than the interest rate in influence the economic activity and monetary policy. Findings Via replacement, the concept of the interest rate by the return rates of Musharakah. It concludes that the central bank can control the monetary policy, economic activity and the efficient allocation of resources by using the return rates of Musharakah through the framework of Islamic economy. Practical/implications The study is a contribution to formulate the methodological framework for a paradigm of Islamic economics, where it investigates the impact of return rates of Musharakah on the money market and monetary policy, by the mathematical methods used in the conventional economy. Also, the study illustrates the importance of further studies that examine the methodological framework for Islamic Economics. Originality/value The study aims to contribute to formulating the Islamic economic theory, through the return rate of Musharakah financing instead of the interest rate, and its effectiveness of the monetary policy. As well as reformulating the concepts of the investment function, the present value and the marginal efficiency rate of investment according to the Islamic economy approach.

Brazil: monetary policy and the neutral interest rate

2016 ◽  
Vol 43 (6) ◽  
pp. 966-979
Author(s):  
Cleomar Gomes da Silva ◽  
Rafael Cavalcanti de Araújo
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Real Interest Rate ◽  
Design Methodology ◽  
Macroeconomic Model ◽  
Natural Rate ◽  
Content Type ◽  
Natural Rate Of Interest ◽  
The Interest Rate ◽  
Definition Of

Purpose The purpose of this paper is to analyze the conduct of monetary policy in Brazil and estimate the country’s neutral real interest rate. Design/methodology/approach The authors make use of a state-space macroeconomic model representation. Findings The period of analysis goes from 2003 up to the end of 2013 and the results show that the country’s natural rate of interest was around 4.2 percent in December 2013. Originality/value One of the main differences of this work is the inclusion of variables such as the real exchange rate and world interest rate. This is important because these variables play an important role in the definition of the interest rate and, consequently, in the definition of the neutral interest rate.

Business cycles in Ethiopia under alternative monetary policy rules

2019 ◽  
Vol 10 (3) ◽  
pp. 299-313
Author(s):  
Wondemhunegn Ezezew Melesse
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Business Cycle ◽  
Central Bank ◽  
Capital Mobility ◽  
Developing Economies ◽  
Dsge Models ◽  
Money Growth ◽  
Content Type ◽  
Policy Shocks

Purpose The purpose of this paper is to compare business cycle fluctuations in Ethiopia under interest rate and money growth rules. Design/methodology/approach In order to achieve this objective, the author constructs a medium-scale open economy dynamic stochastic general equilibrium (DSGE) model. The model features several nominal and real distortions including habit formation in consumption, price rigidity, deviation from purchasing power parity and imperfect capital mobility. The paper also distinguishes between liquidity-constrained and Ricardian households. The model parameters are calibrated for the Ethiopian economy based on data covering the period January 2000–April 2015. Findings The main result suggests that: the model economy with money growth rule is substantially less powerful or more muted for the amplification and transmission of exogenous shocks originating from government spending programs, monetary policy, technological progress and exchange rate movements. The responses of output to fiscal policy shocks are relatively stronger under autarky which appears to confirm the findings of Ilzetzki et al. (2013) who suggest bigger multipliers in self-sufficient, closed economies. With regard to positive productivity shock, however, the model with interest rate feedback rule generates a decline in output and an increase in inflation, which are at odds with conventional empirical regularities. Research limitations/implications The major implication is that a central bank regulating some measure of monetary stocks should not expect (fear) as much expansion (contraction) in output following currency devaluation (liquidity withdrawal) as a sister central bank that relies on an interest rate feedback rule. As emphasized by Mishra et al. (2010) the necessary conditions for stronger transmission of interest-rule-based monetary policy shocks are hardly existent in emerging and developing economies targeting monetary aggregates; hence the relatively weaker responses of output and inflation in the model economy with money growth rule. Monetary policy authorities need to be cautious when using DSGE models to analyze business cycle dynamics. Quite often, DSGE models tend to mimic the proverbial “crooked house” built to every man’s advise. Whenever additional modification is made to an existing baseline model, previously established regularities break down. For instance, this paper documented negative response of output to technology shock. Such contradictions are not uncommon. For example, Furlanetto (2006) and Ramayandi (2008) have also found similarly inconsistent responses to fiscal and productivity shocks, respectively. Originality/value Using DSGE models for research and teaching purposes is not common in developing economies. To the best of the author’s knowledge, only one other Ethiopian author did apply DSGE model to study business cycle fluctuation in Ethiopia albeit under the implausible assumption of perfect capital mobility and a central bank following interest rate rule. The contribution of this paper is that it departs from these two unrealistic assumptions by allowing international risk premium as a function of the net foreign asset position of the country and by applying money growth rule which closely mimics the behavior of central banks in low-income economies such as Ethiopia.

scholarly journals Impacts of the monetary policy on the exchange rate: case study of Vietnam

2019 ◽  
Vol 26 (2) ◽  
pp. 220-237
Author(s):  
Van Anh Pham
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Real Effective Exchange Rate ◽  
Content Type ◽  
Effective Exchange ◽  
Quantitative Results ◽  
The Exchange Rate ◽  
The Interest Rate ◽  
Effective Exchange Rate

Purpose The purpose of this paper is to evaluate and analyze impacts of the monetary policy (MP) – money aggregate and interest rate – on the exchange rate in Vietnam. Design/methodology/approach The study uses data over the period of 2008–2018 and applies the vector autoregression model, namely recursive restriction and sign restriction approaches. Findings The main empirical findings are as follows: a contraction of the money aggregate significantly leads to the real effective exchange rate (REER) depreciating and then appreciating; a tightening of the interest rate immediately causes the REER appreciating and then depreciating; and both the money aggregate and the interest rate strongly determine fluctuations of the REER. Originality/value The quantitative results imply that the MP affects the REER considerably.

scholarly journals Monetary Policy Effects on Energy Sector Bubbles

Energies ◽  
2019 ◽  
Vol 12 (3) ◽  
pp. 472
Author(s):  
Petre Caraiani ◽  
Adrian Călin
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Asset Prices ◽  
The United States ◽  
Energy Sector ◽  
Monetary Policy Shocks ◽  
Policy Shocks ◽  
The Difference ◽  
The Interest Rate ◽  
The Impact

We investigate the effects of monetary policy shocks, including unconventional policy measures, on the bubbles of the energy sector, for the case of the United States. We estimate a time-varying Bayesian VAR model that allows for quantifying the impact of monetary policy shocks on asset prices and bubbles. The energy sector is measured through the S&P Energy Index, while bubbles are measured through the difference between asset prices and the corresponding dividends for the energy sector. We find significant differences in the impact of monetary policy shocks for the aggregate economy and for the energy sector. The findings seem sensitive to the interest rate use, i.e., whether one uses the shadow interest rate or the long-term interest rate.

Office properties through the interest cycle

2016 ◽  
Vol 34 (5) ◽  
pp. 432-456 ◽  
Author(s):  
Jonas Hahn ◽  
Verena Keil ◽  
Thomas Wiegelmann ◽  
Sven Bienert
Keyword(s):  
Interest Rate ◽  
Impulse Response ◽  
Economic Sustainability ◽  
Economic Factors ◽  
Sudden Increase ◽  
Content Type ◽  
Vector Autoregressive ◽  
Interest Level ◽  
The Interest Rate ◽  
The Impact

Purpose – The purpose of this paper is to estimate the impact of changes in macro-economic conditions going forward, focusing on a change in interest policy, with regard to office letting and investment markets. Design/methodology/approach – For this analysis, the authors constructed two vector-autoregressive models, measuring the response of office rents and capital values in Germany to economic impulses. The authors isolated effects of unique exogenous positive shocks (such as economic growth or interest leaps) on the basis of impulse-response functions in order to understand the complex dynamic interdependence between several economic factors and office performance changes. Findings – The authors initially find a moderately positive development of both office performance components even although supposing an increase in interest level. In terms of capital values, the authors find that they do not drop before 1.5 years after the interest impulse and the negative effect peaks after approximately nine quarters. Furthermore, the reaction to a change in GDP is significantly lower than a reaction to the interest rate, but impulses in other macro-economic factors provoke stronger reactions. Finally, the authors find that a positive interest shock leads to a comparably robust development and economic sustainability in office rents throughout a consideration horizon of 24 quarters. Research limitations/implications – Estimations are based on observations from a time period containing two rather extraordinary market phases. As they included bubble growth and the low-interest environment, the authors find that certain patterns in both phases neutralize each other when looking at the total time frame. The authors constructed sub-samples to compensate for this. However, the research does not provide to what extent the measured impulse-responses stay forecast-proof, if the market moves into a phase of short-term normalization. Practical implications – This paper provides insights into estimated impulse-response patterns on a hypothetical sudden increase of several macro-economic determinants. On this basis, the probable reaction to an increase in, for example, the interest rate level can be approximated. Also, the paper provides a fundamental understanding of the economic sustainability of German office properties in terms of their value and rent performance in the case of exogenous shocks. Originality/value – This paper contains the first vector-autoregressive, impulse-response analysis of office markets in Germany in the context of several macro-economic drivers, including the interest level. It delivers insights into market reaction patterns on the basis of simulated one standard deviation shocks in all included variables.

scholarly journals An Insight Regarding Economic Growth and Monetary Policy in Romania

2015 ◽  
Vol 62 (s1) ◽  
pp. 85-95 ◽  
Author(s):  
Valentina Mera ◽  
Monica Pop Silaghi
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Interest Rate ◽  
Sacrifice Ratio ◽  
National Bank ◽  
Potential Gdp ◽  
The Interest Rate ◽  
The Cost ◽  
The Impact ◽  
The Sacrifice

Abstract This study introduces some aspects regarding the link between monetary policy and economic growth, through a rule well known in the literature which is named Taylor’s rule and through the concept of sacrifice ratio which encompasses the impact of the cost of disinflation on the economic growth of a country. In this paper, we rely on estimates of the growth of potential GDP of the National Bank of Romania for the period 2003-2006 while for the period 2007-2012 we rely on the estimates reported by the International Monetary Fund. Thus, we carry a deterministic exercise for computing the interest rate on the period 2003-2012 as depicted from the Taylor’s rule and we compare it with the effective monetary policy interest rate used by the National Bank of Romania. In the same time, we calculate the sacrifice ratio for the period 1997-2013 so as to be able to form an opinion regarding the cost of disinflation and its comparison with the typical estimates for larger time spans and for other countries.

“Corruption premium” on municipal borrowing cost: the case of Spanish Mayors

2019 ◽  
Vol 31 (3) ◽  
pp. 392-409 ◽  
Author(s):  
Francisco Bastida ◽  
María-Dolores Guillamón ◽  
Bernardino Benito ◽  
Ana-María Ríos
Keyword(s):  
Panel Data ◽  
Interest Rate ◽  
Interest Rates ◽  
Financial Management ◽  
Generalized Method Of Moments ◽  
Significant Risk ◽  
Legal Framework ◽  
Content Type ◽  
The Interest Rate ◽  
The Impact

Purpose The purpose of this paper is to examine the impact of mayors’ corruption on the municipal interest rate set by lenders. Design/methodology/approach The sample consists of a panel data for all the Spanish cities with population over 50,000 for 2002–2013 (130 municipalities). In line with previous literature and the structure of the panel data, the authors use a generalized method of moments equation to the main model and three robustness checks. Findings The results, robust to different specifications, indicate that banks do not take mayors’ corruption as a significant risk component of the municipal solvency. The data show a “corruption premium” ranging from −1 to 33 basis points, which aligns with the size of the “corruption premium” found by the literature, but the significance is low. This finding is connected, on the one hand, with the rigid, thorough Spanish legal framework ruling municipal financial management, and on the other hand, with the characteristics of mayors’ corruption. Robust evidence shows that key financial indicators influence interest rates: current saving, with a strong influence, and level of indebtedness, to a lesser extent. Besides, more populated cities pay lower interest rates. Research limitations/implications The main limitation stems from the calculation of interest rate, because but sharp debt changes may decrease the accuracy. Practical implications The data prove that banks value this surplus as a sign of solvency and set lower interest rates. Considering that this financial indicator is key for setting the interest rate, as a point for practitioners, current saving should be monitored by the municipal financial officer, as a way to reduce the financial cost. Besides, legislation should consider current saving as a benchmark to set balanced budget rules or to establish conditions for municipalities to get into greater indebtedness. Originality/value This is the first research on municipal interest rate premium due to corruption in Spain.

Does interest rate liberalisation affect the constancy of mean interest rates in China?

2020 ◽  
Vol 28 (4) ◽  
pp. 555-568
Author(s):  
Hui Hong ◽  
Zhicun Bian ◽  
Naiwei Chen ◽  
Chiwei Su
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Structural Breaks ◽  
Negative Impact ◽  
Financial Reforms ◽  
Inflationary Expectation ◽  
Content Type ◽  
The Mean ◽  
The Interest Rate ◽  
The Impact

Purpose This paper aims to examine the impact of interest rate liberalisation on the constancy of mean interest rates in China to test the effect of financial reforms and provide strategies for future practices. Design/methodology/approach Bai and Perron’s (1998, 2003) methodology is used to test for structural breaks in the mean of different interest rates using Chinese data, and break dates are measured against the exact dates of the interest rate liberalisation. The performance of mean interest rates across the regimes defined by liberalisation dates is also investigated. Findings The main results show that interest rates generally increase (decrease) after deregulations on lending (deposit) rates, but these changes are not significant to induce a negative impact on the domestic economy. Instead, the infrequent but important shifts (structural breaks) in mean interest rates are caused by factors other than liberalisation such as economic shocks, inflationary expectation and liquidity crunch in China. Originality/value To the best of the author’s knowledge, this paper provides unprecedented evidence on significant changes in interest rates attributable to the liberalisation within the Chinese context.

scholarly journals The Impact of Electronic Money on Monetary Policy: Based on DSGE Model Simulations

Mathematics ◽  
2021 ◽  
Vol 9 (20) ◽  
pp. 2614
Author(s):  
Sumei Luo ◽  
Guangyou Zhou ◽  
Jinpeng Zhou
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
New Keynesian ◽  
Dsge Model ◽  
Economic Sectors ◽  
Electronic Money ◽  
Savings And Loans ◽  
Interactive Relationship ◽  
The Interest Rate ◽  
The Impact

Starting with the interactive relationship between electronic money and household consumption stimuli, this paper deeply analyzes the changes in the behavior of each monetary subject under the impact of electronic money, and establishes a DSGE model based on the three economic sectors of family, commercial bank and central bank under the New Keynesian framework. On this basis, the impact of electronic money on savings, loans, output and the interest rate, and its impact on monetary policy, are described by numerical simulation. The simulation results show that: (1) electronic money has asymmetric effects on savings and loans, but an irrational deviation on households; (2) the influence of electronic money on the interest rate has a reverse effect, and the “inverse adjustment” of the interest rate increases the management difficulty of the micro subject to a certain extent, and affects the effectiveness of monetary policy; (3) the regulatory effect of price monetary policy is better than that of quantitative monetary policy, and electronic money has the effect of its risk restraining impact. Finally, based on the analysis, this paper gives policy recommendations.

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