Evaluating survey-based forecasts of interest rates and macroeconomic variables

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Athanasios Fassas ◽  
Stephanos Papadamou ◽  
Dimitrios Kenourgios
Keyword(s):  
Interest Rates ◽  
Forecast Horizon ◽  
Content Type ◽  
Macroeconomic Variables ◽  
Market Participants ◽  
Inflation Forecasts ◽  
Long Run ◽  
Time Period ◽  
Short Run

PurposeThis study examines the forecasting performance of the professional analysts participating in the Blue Chip Economic Indicators Survey using an alternative methodological research design.Design/methodology/approachThis work employs two methodologies, namely a panel specification, with the cross-section being the forecast horizon (from 1-month to 18-months ahead forecasts) and the time period being the time that the forecast was made and a quantile regression technique, which evaluates the hidden nonmonotonic relations between the forecasts and the target variables being forecasted.FindingsThe empirical findings of this study show that survey-based forecasts of certain key macroeconomic variables are generally biased but still efficient predictors of target variables. In particular, we find that survey participants are more efficient in predicting long-term interest rates in the long-run and short-term interest rates in the short run, while the predictability of medium-term interest rates is the least accurate. Finally, our empirical analysis suggests that currency fluctuations are very hard to predict in the short run, while we show that survey-based forecasts are among the most accurate predictors of GDP deflator and growth.Practical implicationsEvaluating the accuracy of economic forecasts is critical since market participants and policymakers utilize such data (as one of several inputs) for making investment, financial and policy decisions. Therefore, the quality of a decision depends, in part, on the quality of the forecast. Our empirical results should have immediate implications for asset pricing models that use interest rates and inflation forecasts as variables.Originality/valueThe present study marks a methodological departure from existing empirical attempts as it proposes a simpler yet powerful approach in order to investigate the efficiency of professional forecasts. The employed empirical specifications enable market participants to investigate the information content of forecasts over different forecast horizons and the temporal evolution of forecast quality.

Exploring the relationship between macroeconomic indicators and sovereign credit default swap in Pakistan

2017 ◽  
Vol 18 (4) ◽  
pp. 368-380
Author(s):  
Abdul Rashid ◽  
Farooq Ahmad ◽  
Ammara Yasmin
Keyword(s):  
Exchange Rate ◽  
Credit Default Swap ◽  
Content Type ◽  
Macroeconomic Variables ◽  
Long Run ◽  
Credit Default ◽  
Macroeconomic Indicators ◽  
Short Run ◽  
The Exchange Rate ◽  
The Interest Rate

Purpose This paper aims to empirically examine the long- and short-run relationship between macroeconomic indicators (exchange rates, interest rates, exports, imports, foreign reserves and the rate of inflation) and sovereign credit default swap (SCDS) spreads for Pakistan. Design/methodology/approach The authors apply the autoregressive distributed lag (ARDL) model to explore the level relationship between the macroeconomic variables and SCDS spreads. The error correction model is estimated to examine the short-run effects of the underlying macroeconomic variables on SCDS spreads. Finally, the long-run estimates are obtained in the ARDL framework. The study uses monthly data covering the period January 2001-February 2015. Findings The results indicate that there is a significant long-run relationship between the macroeconomic indicators and SCDS spreads. The estimated long-run coefficients reveal that both the interest rate and foreign exchange reserves are significantly and negatively, whereas imports and the rate of inflation are positively related to SCDS spreads. Yet, the results suggest that the exchange rate and exports do not have any significant long-run impact on SCDS spreads. The findings regarding the short-run relationship indicate that the exchange rate, imports and the rate of inflation are positively, whereas the interest rate and exports are negatively related to SCDS spreads. Practical implications The results suggest that State Bank of Pakistan should design monetary and foreign exchange rate polices to minimize unwanted variations in the exchange rate to reduce SCDS spreads. The results also suggest that it is incumbent to Pakistan Government to improve the balance of payments to reduce SCDS spreads. The findings also suggest that the inflation targeting policy can also help in reducing SCDS spreads. Originality/value This is the first study to examine the empirical determinants of SCDS spreads for Pakistan. Second, it estimates the short- and long-run effects in the ARDL framework. Third, it considers both internal and external empirical determinants of SCDS spreads.

Macroeconomic shocks, fragility and home financing in Malaysia: can rental index be the answer?

2018 ◽  
Vol 9 (1) ◽  
pp. 17-44 ◽  
Author(s):  
Rosylin Mohd Yusof ◽  
Farrell Hazsan Usman ◽  
Akhmad Affandi Mahfudz ◽  
Ahmad Suki Arif
Keyword(s):  
Interest Rates ◽  
Islamic Banks ◽  
Macroeconomic Shocks ◽  
Content Type ◽  
Long Run ◽  
Short Run ◽  
Rental Rate ◽  
Conventional Banks ◽  
The Impact ◽  
Conventional And Islamic Banks

Purpose This study aims to investigate the interactions among macroeconomic variable shocks, banking fragility and home financing provided by conventional and Islamic banks in Malaysia. Identifying the causes of financial instability and the effects of macroeconomic shocks can help to foil the onset of future financial turbulence. Design/methodology/approach The autoregressive distributed lag bound-testing cointegration approach, impulse response functions (IRFs) and forecast error variance decomposition are used in this study to unravel the long-run and short-run dynamics among the selected macroeconomic variables and amount of home financing offered by both conventional and Islamic banks. In addition, the study uses Granger causality tests to investigate the short-run causalities among the selected variables to further understand the impact of one macroeconomic shock to Islamic and conventional home financing. Findings This study provides evidence that macroeconomic shocks have different long-run and short-run effects on amount of home financing offered by conventional and Islamic banks. Both in the long run and short run, home financing provided by Islamic banks is more linked to real sector economy and thus is more stable as compared to home financing provided by conventional banks. The Granger causality test reveals that only gross domestic product (GDP), Kuala Lumpur Syariah Index (KLSI)/Kuala Lumpur Composite Index (KLCI) and house price index (HPI) are found to have a statistically significant causal relationship with home financing offered by both conventional and Islamic banks. Unlike the case of Islamic banks, conventional home financing is found to have a unidirectional causality with interest rates. Research limitations/implications This study has focused on analyzing the macroeconomic shocks on home financing. However, this study does not assess the impact of financial deregulation and enhanced information technology on amount of financing offered by both conventional and Islamic banks. In addition, it is not within the ambit of this present study to examine the effects of agency costs and information asymmetry. Practical implications The analysis of cointegration and IRFs exhibits that in the long run and short run, home financing provided by Islamic banks are more linked to real sector economy like GDP and House Prices (HPI) and therefore more resilient to economic vulnerabilities as compared to home financing provided by conventional banks. However, in the long run, both conventional and Islamic banks are more susceptible to fluctuations in interest rates. The results of the study suggest that monetary policy ramifications to improve banking fragility should focus on stabilizing interest rates or finding an alternative that is free from interest. Social implications Because interest plays a significant role in pricing of home loans, the potential of an alternative such as rental rate is therefore timely and worth the effort to investigate further. Therefore, Islamic banks can explore the possibility of pricing home financing based on rental rate as proposed in this study. Originality/value This paper examines the unresolved issues in Islamic home financing where Islamic banks still benchmark their products especially home financing, to interest rates in dual banking system such as in the case of Malaysia. To the best of the authors’ knowledge, studies conducted in this area are meager and therefore is imperative to be examined.

Symmetric and asymmetric adjustment of bank deposit interest rates: empirical evidence from Kenya

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Moses Nzuki Nyangu ◽  
Freshia Wangari Waweru ◽  
Nyankomo Marwa
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Asymmetric Adjustment ◽  
Deposit Rate ◽  
Content Type ◽  
Long Run ◽  
Adjustment Speed ◽  
Short Run ◽  
Pass Through

PurposeThis paper examines the sluggish adjustment of deposit interest rate categories with response to policy rate changes in a developing economy.Design/methodology/approachSymmetric and asymmetric error correction models (ECMs) are employed to test the pass-through effect and adjustment speed of deposit rates when above or below their equilibrium levels.FindingsThe findings reveal an incomplete pass-through effect in both the short run and long run while mixed results of symmetric and asymmetric adjustment speed across the different deposit rate categories are observed. Collusive pricing arrangement behavior is supported by deposit rate categories that adjust more rigidly upwards than downwards, while negative customer reaction behavior is supported by deposit rate categories that adjust more rigidly downwards than upwards.Practical implicationsEven though the findings indicate an aspect of increased responsiveness over the period, the sluggish adjustment of deposit rates imply that monetary policy is still ineffective and not uniform across the different deposit rate categories.Originality/valueTo the best of the authors' knowledge, this is the first study to empirically examine both symmetric and asymmetric adjustment behavior of deposit interest rate categories in Kenya. The findings are key to policy makers as they provide insights on how long it takes to adjust different deposit rate categories to monetary policy decisions. In addition, the behavior of deposit rates partly explains why interest rates capping was imposed in Kenya in 2016.

scholarly journals On the Dynamic Relationship between U.S. Farm Income and Macroeconomic Variables

2009 ◽  
Vol 41 (2) ◽  
pp. 521-528 ◽  
Author(s):  
Jungho Baek ◽  
Won W. Koo
Keyword(s):  
Interest Rates ◽  
Commodity Prices ◽  
Commodity Price ◽  
Farm Income ◽  
Agricultural Commodity ◽  
Macroeconomic Variables ◽  
Distributed Lag ◽  
Dynamic Relationship ◽  
Long Run ◽  
Short Run

This study examines the short- and long-run effects of changes in macroeconomic variables—agricultural commodity prices, interest rates and exchange rates—on the U.S. farm income. For this purpose, we adopt an autoregressive distributed lag (ARDL) approach to cointegration with quarterly data for 1989–2008. Results show that the exchange rate plays a crucial role in determining the long-ran behavior of U.S. farm income, but has little effect in the short-run. We also find that the commodity price and interest rate have been significant determinants of U.S. farm income in both the short- and long-run over the past two decades.

The impact of energy consumption to environmental sustainability: an extension of foreign direct investment induce pollution in Vietnam

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Tehreem Fatima ◽  
Muhammad Saeed Meo ◽  
Festus Victor Bekun ◽  
Tella Oluwatoba Ibrahim
Keyword(s):  
Foreign Direct Investment ◽  
Direct Investment ◽  
Ecological Footprint ◽  
International Tourism ◽  
Data Set ◽  
Content Type ◽  
Root Cause ◽  
Long Run ◽  
Short Run

Purpose According to the crusade of the United Nations sustainable development goals (SDGs-6, 7,8,12 and 13) that addressed pertinent issues around, clean access to water, access to energy, responsible consumption and climate change mitigation alongside, respectively, Paris Kyoto Protocol agreement of mitigation of climate changes issues of vision 2030. Design/methodology/approach This purpose of this study aimed to assess the Environmental Kuznets Curve hypothesis following the ecological footprint perspective with a data set covering the period 1995–2018. It is well-established that anthropogenic human activities are the root cause of environmental deterioration. To this end, the current study is fitted in a multivariate framework to ameliorate for omitted variable bias for the data set from 1995–2018 on a quarterly frequency using autoregressive distributive lag methodology. Subsequently, the stationarity status of the study underlines series were examined with a conventional unit root test and the Pesaran’s bounds test for cointegration analysis. Findings Empirical evidence from the bounds test to cointegration traces the co-integration relationship between ecological footprint, conventional energy use, foreign direct investment, international tourism arrival and water resources over the sampled period. The study, in the long run, affirms the N-shaped relationship between ecological footprint and foreign direct investment in Vietnam. Additionally, the present study validates the hypothesis of energy consumption-induced pollution emissions. The relationship between international tourism arrival and quality of the environment is statistically positive in both the short-run and long-run, as 1% in international tourism arrival worsens the quality of the environment by 0.45% and 0.4% in the short-run and long-run, respectively. Interestingly, water resource's major environmental issues that have plagued the Vietnam economy are inversely related to ecological footprint. Based on findings, Vietnamese policymakers may need to consider drafting appropriate environmental policies to tackle global warming while concurrently boosting economic development. Originality/value The present study focuses on Vietnam on the determinant of environmental quality measured by a broader indicator (ecological footprint). It is well-established that anthropogenic human activities are the root cause of environmental deterioration. The present study claims to distinct from previous literature in two-folds, namely, in terms of scope. Vietnam holds a very interesting energy mix and environmental dynamics, which has been ignored in the literature. Second, we argue to be the first based on our survey to explore the theme by incorporation of water resources and foreign direct investment intensification in the conventional pollution determinant model. This is in a bid to highlights the policy blueprint for the country (Vietnam), which is currently plagued with high pollution issues and the region at large.

Dynamic implications of GDP, interest rates, taxes, income, foreign direct investments, housing prices on property NPLs

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Kuen-Wei Tham ◽  
Rosli Said ◽  
Yasmin Mohd Adnan
Keyword(s):  
Interest Rates ◽  
Global Financial Crisis ◽  
Housing Prices ◽  
Economic Environment ◽  
Macroeconomic Factors ◽  
Content Type ◽  
Macroeconomic Variables ◽  
Long Run ◽  
First Time

Purpose The study on how macroeconomic factors affect non-performing loans (NPLs) have not been focussed on property loans, which had been amongst the largest contributor of NPLs in many countries. At the same time, whilst there are many studies that focusses on NPLs during the recession and financial crises, not many studies focus on how macroeconomic factors affect property NPLs in a recovering economic environment. The purpose of this study seeks to fill the gap by analysing the relationships between gross domestic product (GDP), interest rates, income, foreign direct investments (FDI), housing prices and taxes on property NPLs with Malaysia as a case study in which NPLs rose for the first time after declining for almost a decade since the 2008–2009 global financial crisis. This study aims to understand the dynamics and direction of causation in relationships. Design/methodology/approach The author uses the auto regressive distribution lag analysis between the independent variables of GDP, interest rates, housing prices, service taxes, percapita income and FDI affecting the dependent variable of property NPLs from 2009 to 2017, during a unique period of recovering economic environment where NPLs rose for the first time in almost a decade of decline. Findings This study found that interest rates, housing prices, income, GDP and service taxes were found to possess long cause effects and long run elasticity with NPLs. At the same time, interest rates were found to implicate property NPLs significantly in longer periods, followed by GDP, housing prices, service taxes and income. FDIs were found to be insignificantly negative in implicating property NPLs in the long run. Research limitations/implications This paper allows policymakers to understand the dynamic implications of crucial macroeconomic factors in affecting NPLs so that appropriate strategic monetary policies could be formulated towards addressing them. More focus shall be given to addressing the long term implications of these factors on NPLs. Practical implications Appropriate strategic monetary policy making can be channelled towards addressing these factors via understanding the short and long term implications of macroeconomic variables on property NPLs. Policymakers can take note of the long cause effects and long run elasticity of average interest rates, housing prices, income levels, GDP and service taxes with property NPLs so that appropriate long term policies can be addressed to control the rise of property NPLs in the country. At the same time, priority should be given towards strengthening of the GDP of the country due to its strongest impact in long term effects with reduction of NPLs in the country. Social implications The insights from the present study suggest policymakers interested in bringing stability in the real estate finance system need to account for the various macroeconomic variables found in this study. Originality/value The paper is novel on at least two dimensions. First, this study involves focussing on a unique period of recovering economic environment where NPLs rose for the first time after a decade of decline since recovering from the 2008–2009 global financial crisis. At the same time, this study focusses on property NPLs, which is unique in nature compared to general NPLs. This study had enabled policymakers to better understand the dynamic implications of several macroeconomic variables affecting property NPLs and assist them in strategic monetary policy making.

scholarly journals Education and inclusive growth in West Africa

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Oluwatosin Adeniyi ◽  
Patricia Iyore Ajayi ◽  
Abdulfatai Adekunle Adedeji
Keyword(s):  
West Africa ◽  
Positive Impact ◽  
Critical Role ◽  
Quality Of Education ◽  
Inclusive Growth ◽  
Content Type ◽  
Long Run ◽  
Short Run

PurposeMany West African countries face the challenge of growth inclusiveness. The region is also facing challenges of equipping its teeming population with high-quality skills despite many reforms and initiatives introduced in the past. This study, thus, identifies education as a crucial contributory factor to growth inclusiveness in the region. It, therefore, examined the role of education in growth inclusiveness in West Africa between 1990 and 2017.Design/methodology/approachThe study utilised different proxies to capture quantity and quality dimensions of education. The unit root and ARDL “Bounds” tests were employed at a preliminary stage. Based on the preliminary tests, the study explored autoregressive distributed lags modelling technique to capture the short-run and long-run dynamic effects.FindingsThe empirical results reveal a positive impact of school enrolment measures in most of the countries in both short-run and long-run. Education quality measure exerts positive impact and significant in few countries under consideration.Practical implicationsThese countries should give adequate attention to quality when designing education policy to foster their inclusive growth.Originality/valueThis study highlights the critical role of education in the inclusive growth pursuit. Education quantity is important to growth inclusiveness but the quality of education is more fundamental. The quality of education possessed determine to a large extent, what individual can contribute to the productive activities within the economy and accessibility to benefits from economic prosperity.

scholarly journals Analysis of the determinants of foreign direct investment in Ghana

2019 ◽  
Vol 26 (1) ◽  
pp. 56-75 ◽  
Author(s):  
Michael Asiamah ◽  
Daniel Ofori ◽  
Jacob Afful
Keyword(s):  
Interest Rate ◽  
Direct Investment ◽  
Inflation Rate ◽  
Electricity Production ◽  
Negative Effects ◽  
Content Type ◽  
Macroeconomic Variables ◽  
Long Run ◽  
Short Run ◽  
Positive Effect

Purpose The factors that determine foreign direct investment (FDI) are important to policy-makers, investors, the banking industry and the public at large. FDI in Ghana has received increased attention in recent times because its relevance in the Ghanaian economy is too critical to gloss over. The purpose of this paper is to examine the determinants of FDI in Ghana between the period of 1990 and 2015. Design/methodology/approach The study employed a causal research design. The study used the Johansen’s approach to cointegration within the framework of vector autoregressive for the data analysis. Findings The study found a cointegrating relationship between FDI and its determinants. The study found that both the long-run and short-run results found statistically significant negative effects of inflation rate, exchange rate and interest rate on FDI in Ghana while gross domestic product, electricity production and telephone usage (TU) had a positive effect on FDI. Research limitations/implications The study found a cointegrating relationship between FDI and its determinants. The study found that both the long-run and short-run results found statistically significant negative effects of inflation rate, exchange rate and interest rate on FDI in Ghana whiles gross domestic product, electricity production and TU had a positive effect on FDI. Practical implications This study has potential implication for boosting the economies of developing countries through its policy recommendations which if implemented can guarantee more capital inflows for the economies. Social implications This study has given more effective ways of attracting more FDI into countries which in effect achieve higher GDP and also higher standard of living through mechanisms and in the end creating more social protection programs for the people. Originality/value Although studies have been conducted to explore the determinants of FDI, some of the core macroeconomic variables such as inflation, interest rate, telephone subscriptions, electricity production, etc., which are unstable and have longstanding effects on FDI have not been much explored to a give a clear picture of the relationships. Therefore, a study that will explore these and other macroeconomic variables to give clear picture of their relationships and suggest some of the possible ways of dealing with these variables in order to attract more FDI for the country to achieve its goal is what this paper seeks to do.

The sensitivity of house prices under varying monetary regimes: the Nordic scenario

2017 ◽  
Vol 10 (1) ◽  
pp. 4-21 ◽  
Author(s):  
Marcelo Cajias ◽  
Sebastian Ertl
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
House Prices ◽  
Theoretical Perspective ◽  
Negative Relationship ◽  
Content Type ◽  
Policy Regimes ◽  
Long Run ◽  
Short Run ◽  
Relationship Of

Purpose This paper aims to examine whether there are differences between the long and short-term relationship of house prices and interest rates. The elasticity of house prices to monetary policy changes, e.g. via interest rates, is from a theoretical perspective and in the long-run negative. However, house prices adapt in the short-run dynamically to economic, financial, institutional and demographic factors. Design/methodology/approach In this paper, the authors confirm the aforementioned elasticity for the Nordic housing markets but provide evidence of drastic deviations from the negative relationship. This is done by using rolling regressions in search for time-varying betas. Findings The empirical results show that recessionary and expansionary policy regimes play a much more important role in the development of house prices in Finland, Sweden and Norway, than in Denmark. Originality/value Further, it is shown that the relationship between house prices and monetary policy is discontinuous over time, with large deviations from the long-term beta during the past decade. This holds true especially since the beginning of the financial crisis and the expansionary monetary policy in Europe.

Conventional and Islamic banks deposit rates as inflation hedges: the case of Malaysia

2019 ◽  
Vol 35 (2) ◽  
pp. 128-139
Author(s):  
Siew Peng Lee ◽  
Mansor Isa
Keyword(s):  
Interest Rates ◽  
Emerging Market ◽  
Data Series ◽  
Islamic Banks ◽  
Content Type ◽  
Islamic Bank ◽  
Long Run ◽  
Short Run ◽  
Inflation Hedging ◽  
Conventional And Islamic Banks

Purpose The purpose of this paper is to examine the extent to which conventional and Islamic bank fixed deposit rates can protect depositors against inflation in the Malaysia context. Design/methodology/approach Nominal interest rates are represented by commercial bank fixed deposit and investment bank fixed deposit rates. The authors use monthly data over the period 2000–2016. The authors apply the autoregressive distributed lag bounds testing methodology to test the existence of long-run relationship between nominal rates and inflation, and the error-correction model to test for the short-run dynamics. Findings The results show that the nominal interest rate and inflation are cointegrated for all the data series. The evidence indicates that all the fixed deposit rates, for both conventional and Islamic banks are effective inflation hedges in the long-run thereby supporting the Fisher hypothesis. There is no difference in the inflation hedging ability between conventional bank rates and Islamic bank rates. However, the authors find no evidence of the short-run relationship between interest rates and inflation for either bank. Practical implications Bank regulators should be concerned on the similarities in behaviour towards inflation between conventional and Islamic rates, given that the deposit rates for both banks are supposedly set based on different premises. Bank customers, they should deposit their money for the long horizon in order to protect themselves against inflation. Depositors worrying about inflation should be indifferent between conventional or Islamic as both banks provide similar inflation hedging characteristics. Originality/value The novelty of this study is in using the bank fixed deposit rates to study the Fisher effect in an emerging market and in comparing the conventional and Islamic bank rates in terms of their inflation hedging ability.

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