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.

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.

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.

CREDIT AND THE PROBLEM OF TRUST IN THE THOUGHT OF JOHN LOCKE, c. 1668–1704

2020 ◽  
pp. 1-22
Author(s):  
JON COOPER
Keyword(s):  
Seventeenth Century ◽  
Interest Rate ◽  
John Locke ◽  
Moral Community ◽  
Natural Rate ◽  
Private Banks ◽  
Public Credit ◽  
Bank Of England ◽  
Natural Rate Of Interest ◽  
The Interest Rate

Abstract This article presents a reinterpretation of John Locke's contribution to debates about the interest rate in the seventeenth century. It suggests that his argument that England should maintain the ‘natural’ rate, rather than impose a lower rate, was motivated by his theological, moral, and social conceptions of credit and its dependence on trust. In order to solve the endemic shortage of metal coin limiting the growth of monetary exchange in England, Locke stressed that the higher, ‘natural’ rate of interest would facilitate interpersonal borrowing and lending among neighbours, allowing currency to flow more freely around the country. By contrast, while he acknowledged that institutional creditors such as goldsmith-bankers could quicken the circulation of money by issuing debt instruments like bills of exchange, he saw institutional credit as a threat to the moral community. Not only did he question how people could rationally trust financiers without any epistemic apprehension of their personal probity, but he moreover doubted whether individuals accumulating so much money were likely to act trustworthily. Finally, using an otherwise unstudied dialogue about the Bank of England, this article argues Locke extended his criticisms about the threats posted by private banks to the country's nascent system of public credit.

scholarly journals A benchmark modelling for participation-based tax increment financing

2020 ◽  
Vol 12 (2) ◽  
pp. 253-264
Author(s):  
Yusuf Varli ◽  
Gokhan Ovenc
Keyword(s):  
Interest Rate ◽  
Design Methodology ◽  
Stochastic Modelling ◽  
Base Case ◽  
Tax Increment Financing ◽  
Case Scenario ◽  
Base Case Scenario ◽  
Content Type ◽  
The Interest Rate ◽  
Practical Implications

Purpose This paper aims to present the theoretical and conceptual framework of a new method in public finance called “participation based tax increment financing (P-TIF)” by combining conventional tax increment financing (TIF) within the Sharīʿah-compliance structure. Design/methodology/approach This study develops a benchmark model for P-TIF, which offers a participative contract between both lender and borrower. With the help of this model, a financing schema in P-TIF is established by incorporating stochastic modelling. Possible implications and alternative options of application are also explored with a discussion of challenges. Findings The results mainly indicate that P-TIF promises lenders to be a part of increment from tax earnings, in return for a reduced interest rate. They show how a rise in participation of the lender in a given contract lowers the interest rate. Under the base case scenario, the interest rate is reduced to zero when the participation of the lender in tax increment is set at 50%. Practical implications With the feature of being interest-free, P-TIF can be implied also within the Sharīʿah-compliance framework, thanks to the model it is based on. Additionally, as the model in this paper is parametric, it can be applicable to various cases in Islamic finance. Originality/value To the best of our knowledge, this is the first paper in the literature in the sense that it provides a conceptual idea and respective model for TIF method within a Sharīʿah-compliance framework.

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 Matching NBP interest rates to different versions of the Taylor rule

2019 ◽  
Vol 14 (2) ◽  
pp. 165-177
Author(s):  
Tomasz Grabia
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Economic Crisis ◽  
Real Interest Rate ◽  
Taylor Rule ◽  
Macroeconomic Variables ◽  
The Interest Rate ◽  
Gdp Gap

The interest rate is the basic instrument of monetary policy, directly or indirectly affecting basic macroeconomic variables, such as inflation, unemployment and economic growth. The aim of the article is to compare the NBP reference rate with hypothetical rates calculated on the basis of different variants of the Taylor rule and to indicate which of those variants is best suited to the situation in Poland. The study period of 2000-2017 was adopted for the analysis. On its basis, it was found that in most cases the real interest rate of the central bank in Poland strongly coincided with rates that would have been set if one of the varieties of the Taylor rule had been in force. The best match coincided with the modified version of this rule, which was created after the economic crisis. That means that the NBP took into account both the deviations of inflation from the target and the GDP gap when making decisions regarding interest rates.

The long-run interrelationship between exchange rate and interest rate: the case of Mexico

2019 ◽  
Vol 46 (7) ◽  
pp. 1380-1397 ◽  
Author(s):  
Salvatore Capasso ◽  
Oreste Napolitano ◽  
Ana Laura Viveros Jiménez
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Real Exchange Rate ◽  
Real Interest Rate ◽  
Content Type ◽  
Long Run ◽  
Monetary Authorities ◽  
The Exchange Rate ◽  
The Interest Rate

Purpose The purpose of this paper is to analyse the long-term nature of the interrelationship between interest rate and exchange rate. Design/methodology/approach By employing Mexican data, the authors estimate a non-linear autoregressive distributed lags (NARDL) model to investigate the nature of the changes and the interaction between interest rate and exchange rate in response to monetary authorities’ actions. Findings The results show that, contrary to simplistic predictions, the real exchange rate causes the real interest rate in an asymmetric way. The bounds testing approach of the NARDL models suggests the presence of co-integration among the variables and the exchange rate variations appear to have significant long-run effects on the interest rate. Most importantly, these effects are asymmetric and positive variations in the exchange rate have a lower impact on the interest rate. It is also interesting to report that the reverse is not true: the interest rate in the long-run exerts no statistical significant impact on the exchange rate. Practical implications The asymmetric long-term relationship between real exchange rate and real interest rate is evidence of why monetary authorities are reluctant to free float exchange rate. In Mexico, as in most developing countries, monetary policy strongly responds to exchange rate movements because these have relevant effects on commercial trade. Moreover, in dollarized economies these effects are stronger because of pass-through impacts to inflation, income distribution and balance-sheet equilibrium (the well-known “original sin”). Originality/value Under inflation targeting and flexible exchange rate regime, despite central banks pursue the control of short-term interest rate, in the long-run one could observe that it is the exchange rate that influences the interest rate, and that this reverse causality is stronger in emerging economies. This paper contributes by analysing the asymmetric relationship between the variables.

scholarly journals The Time - Varying Natural Rate of Interest and Its Fundamental Determinants: Time Series Evidence from Turkey

2016 ◽  
Vol 6 (2) ◽  
pp. 390
Author(s):  
Ilyas Siklar ◽  
Umit Yildiz ◽  
Sinan Cakan
Keyword(s):  
Time Series ◽  
Exchange Rate ◽  
Interest Rate ◽  
Time Series Data ◽  
Series Data ◽  
Natural Rate ◽  
Output Price ◽  
Natural Rate Of Interest ◽  
Causality Relationship ◽  
The Interest Rate

In this study, by estimating the natural rate of interest, its relationship with key macroeconomic variables is analyzed using the time series data obtained from Turkey. As a first step, together with the natural rate of interest, the potential levels of output, prices and foreign exchange rate are estimated by using the Kalman Filter algorithm and then the related gap levels of each variable representing the deviations from their potentials are determined. As a second step of the study, the effects of output, price and exchange rate gaps on the interest rate gap are analyzed by using cointegration and error correction methodologies and the causality relationship among variables are examined. The main conclusion of the current study is that there is significant causality relationship between the interest rate gap, output, price and exchange rate gaps.

Impacts of monetary instruments on overnight spread under the interest rate corridor framework: evidence from China

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Chiu-Lan Chang ◽  
Ming Fang ◽  
Bin Hong ◽  
Kung-Cheng Ho
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Policy Instruments ◽  
Short Term ◽  
Content Type ◽  
Interest Rate Policy ◽  
Interest Rate Liberalization ◽  
The Interest Rate ◽  
Financing Market

PurposeTo verify the effectiveness of the monetary policy, the impacts of monetary instruments on overnight spread under the interest rate corridor (IRC) are examined. The People's Bank of China (PBC) has operated the IRC since 2014. To understand the impacts of monetary instruments on overnight spread before and after the IRC framework, the complete samples are divided into two periods.Design/methodology/approachTo model the overnight spread, an exponential GARCH (EGARCH) approach is used which can examine the interbank market interest rates for monetary policy purposes. The overnight money market plays an important role in the implementation of monetary policy.FindingsChinese interest rate liberalization and the implementation of IRC affect the overnight spread in the short-term financing market. Before the implementation of the IRC, the key factor to affect the overnight spread is mainly affected by the PBC's monetary policy control on the liquidity supply side. After the implementation of IRC, the overnight spread can be the largest part explained by the liquidity demand side and the PBC's multiple monetary instruments have significant impacts on the reduction of overnight spread.Originality/valueThe overnight spread has recently been influenced by various factors that are directly or closely related to the monetary policy instruments and the interest rate policy of the PBC. Chinese interest rate liberalization and the implementation of interest rate corridor policy affect the overnight spread in the short-term financing market.

The Role of Different Channels in Transmitting Monetary Policy into Output and Price in Vietnam

2015 ◽  
pp. 20-40
Author(s):  
Vinh Nguyen Thi Thuy
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Monetary Transmission ◽  
Impulse Response Functions ◽  
Short Run ◽  
The Exchange Rate ◽  
The Interest Rate ◽  
Interest Rate Channel

The paper investigates the mechanism of monetary transmission in Vietnam through different channels - namely the interest rate channel, the exchange rate channel, the asset channel and the credit channel for the period January 1995 - October 2009. This study applies VAR analysis to evaluate the monetary transmission mechanisms to output and price level. To compare the relative importance of different channels for transmitting monetary policy, the paper estimates the impulse response functions and variance decompositions of variables. The empirical results show that the changes in money supply have a significant impact on output rather than price in the short run. The impacts of money supply on price and output are stronger through the exchange rate and credit channels, but however, are weaker through the interest rate channel. The impacts of monetary policy on output and inflation may be erroneous through the equity price channel because of the lack of an established and well-functioning stock market.

Sign in / Sign up

Export Citation Format

Share Document