MONETARY POLICY AND REAL INTEREST RATES

1983 ◽  
Vol 18 (3) ◽  
pp. 105-105
Author(s):  
John M. Harris
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Real Interest Rates

scholarly journals Excess Real Interest Rates and the Inflation Targeting Regime in Brazil: Monetary Policy Ineffectiveness and Rentiers’ Interests

2018 ◽  
Vol 5 (6) ◽  
pp. 84
Author(s):  
Fernando Ferrari Filho ◽  
Marcelo Milan
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Negative Impact ◽  
Policy Instruments ◽  
Output Growth ◽  
International Standards ◽  
Real Interest Rates ◽  
The Interest Rate

Brazil has had, since the middle 1990s, one of the highest real interest rates in the world, yet not one of the lowest inflation rates. By the end of that decade, an inflation targeting regime (ITR) was introduced. Real interest rates have remained extremely high for international standards, while macroeconomic performance has been dismal on the same grounds. This article argues that these results can be explained by, among others reasons, pressures from the rentiers to frame monetary policy in a way to sustain very high interest earnings in a context where inflation is not very sensitive to monetary policy instruments. Under the ITR, the interest rate seems to have been kept above what would be required to maintain low inflation under normal conditions (even if one assumes a demand-pull inflation, which is not necessarily the case), with a potentially negative impact on growth and employment. This is interpreted as an indicator of monetary policy ineffectiveness. On the empirical ground, this article compares interest rate, inflation, unemployment, and real output growth for Brazil with both ITR and non-ITR countries selected by judgment sampling.

scholarly journals Monetary Policy and Long-Term Real Interest Rates in Brazil

2018 ◽  
Vol 16 (3) ◽  
pp. 371
Author(s):  
Adonias Evaristo Da Costa Filho
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Policy Decisions ◽  
Real Interest Rates ◽  
Real Rate ◽  
Classical View ◽  
The Real ◽  
Long Run

This paper studies the sensitivity of long-term real rates to monetary policy in Brazil. Based on the response of long-term real rates to monetary policy decisions, it is found that monetary factors have little power over long-term rates, with 100 basis points unexpected hike in the policy rate leading to an increase in long-term real rates of 12 basis points. The results are consistent with the classical view of interest rates, in which the real rate of the economy in the long run is determined by real fundamentals and largely unrelated to monetary factors.

scholarly journals Low Real Interest Rates, Collateral Misrepresentation, and Monetary Policy

2018 ◽  
Vol 10 (4) ◽  
pp. 202-233 ◽  
Author(s):  
Stephen D. Williamson
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Asset Markets ◽  
Real Interest Rates ◽  
Incentive Problems ◽  
Asset Quality ◽  
Interest Rate Differentials

A model is constructed in which households and banks have incentives to fake the quality of collateral. These incentive problems matter when collateral is scarce in the aggregate—when real interest rates are low. Conventional monetary easing can exacerbate these problems, in that the misrepresentation of collateral becomes more profitable, thus increasing haircuts and interest rate differentials. Central bank purchases of private mortgages may not be feasible, due to the misrepresentation of asset quality. If feasible, central bank asset purchase programs work by circumventing suboptimal fiscal policy, not by mitigating incentive problems in asset markets. (JEL E43, E52, E58, E62, G21)

The causes and challenges of low interest rates: insights from basic principles and recent literature

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Youchang Wu
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Relative Price ◽  
Downward Trend ◽  
Real Interest Rates ◽  
Basic Principles ◽  
Content Type ◽  
Economic Forces ◽  
Rate Environment

PurposeWhat causes the downward trend of real interest rates in major developed economies since the 1980s? What are the challenges of the near-zero interest and inflation rates for monetary policy? What can the policymakers learn from the latest developments in the monetary and interest rate theory? This paper aims to answer these questions by reviewing both basic principles of interest rate determination and recent academic and policy debates.Design/methodology/approachThe paper critically reviews the explanations for the downward trend of real interest rates in recent decades and monetary policy options in a near-zero interest rate environment.FindingsThe decline of real interest rates is likely an outcome of multiple technological, social and economic factors including diminished productivity growth, changing demographics, elevated tail-risk concerns, time-varying convenience yields of safe assets, increased global demand for safe assets, rising wealth and income inequality, falling relative price of capital, accommodative monetary policies, and changes in industry structure that alter the investment and saving behaviors of the corporate sector. The near-zero interest rate limits the space of central banks' response to economic crises. It also challenges some conventional wisdoms of monetary theory and sparks radically new ideas about monetary policy.Originality/valueThis survey differs from the existing work by taking a broader view of both economics and finance literature. It critically assesses the economic forces driving the global decline of real interest rates through the lens of basic principles and empirical evidence and discusses the merits and limitations of each proposed explanation. The study emphasizes the importance of a better understanding of economic forces driving diverging trends of corporate investment and saving behaviors. It also discusses the implications of the neo-Fisherism and the fiscal theory of price level for monetary policy in a low interest rate environment.

scholarly journals Monetary policy independence and floating exchange rates: what does the Brazilian evidence tell us?

2004 ◽  
Vol 24 (1) ◽  
pp. 30-37
Author(s):  
CARLOS EDUARDO SOARES GONÇALVES
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Interest Rates ◽  
Real Interest Rates ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
Floating Exchange Rates ◽  
Fear Of Floating

ABSTRACT Some authors have advocated that shifting from fixed exchange rates to floating regimes has not delivered better economic outcomes to developing countries. As the argument goes, pervasive fear of floating in these economies has prevented drops in real interest rates and, more importantly, has been a hindrance in the way towards more monetary policy autonomy. This paper presents evidence suggesting this may not be the case for Brazil. More precisely, there are signs that fear of floating was less acute here (presumably due to low exchange rate pass-through) than elsewhere, and also that policymakers are now targeting monetary policy principally to domestic objectives.

scholarly journals 5.2. THE EFFECT OF THE TRANSFER AS THE INFLUENCE OF EXCHANGE RATE DYNAMICS ON THE MAIN MACROECONOMIC INDICATORS

2020 ◽  
Author(s):  
А.С. Бутузова
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rates ◽  
Russian Federation ◽  
Medium Term ◽  
Real Interest Rates ◽  
Exchange Rate Dynamics ◽  
Macroeconomic Indicators ◽  
The Russian Federation ◽  
The Impact

В условиях современной денежно-кредитной политики в Российской Федерации актуальным является вопрос воздействия ослабления национальной валюты на уровень цен в стране (т.е. эффект переноса валютного курса на инфляцию). События в денежно-кредитной сфере конца 2014 г. продолжают оказывать среднесрочный эффект как на финансовые, так и на макроэкономические показатели РФ. Пруденциальная макроэкономическая и денежно-кредитная политика должна учитывать влияние волатильности национальной валюты и уровня инфляции на основные макроэкономические показатели, такие как валовой внутренний продукт, уровень процентных ставок в экономике и реальный доход на душу населения. Цель работы: оценка влияния динамики валютного курса на уровень инфляции и другие основные макроэкономические показатели в РФ (в краткосрочном и среднесрочном периодах как результат перехода к плавающему валютному курсу). В процессе изучения опыта проведения денежно-кредитной политики в РФ использовались методы анализа, в том числе ретроспективного, и синтеза; сбор, консолидация и анализ статистических данных; построение многопеременных графиков и диаграмм. В ходе исследования выявлено влияние валютного курса рубля на инфляцию и другие основные макроэкономические показатели в РФ; оценен эффект переноса валютного курса на инфляцию на различных временных интервалах. Сделан вывод о том, что эффект переноса валютного курса на инфляцию в рассмотренный период нельзя определить однозначно: так, в краткосрочном периоде эффект переноса высок, а в среднесрочном периоде на фоне низкой инфляции и относительно невысокой волатильности курса рубля происходит падение реальных доходов населения и рост реальных процентных ставок в экономике. In the conditions of modern monetary policy in the Russian Federation, the issue of the impact of the weakening of the national currency on the inflation is relevant. The events in the monetary policy at the end of 2014 continue to have a medium-term effect on both financial indicators and macroeconomic indicators of the Russia. The impact of the exchange rate and inflation on a country's GDP, the level of real interest rates and standard of living of the population are important for building prudential macroeconomic and monetary policies. Assessment of the impact of exchange rate dynamics on the main macroeconomic indicators in the Russian Federation (short-term and medium-term results after the transition to a floating exchange rate). Methods of analysis, synthesis and retrospective analysis were used in the process of studying the experience of conducting monetary policy in the Russian Federation; collection, consolidation and analysis of statistical data; construction of multi-variable graphs and charts. The influence of the ruble exchange rate on the main macroeconomic indicators in the Russian Federation has been revealed; the effect of exchange rate carryover on inflation at various time intervals is estimated. It was concluded that the medium-term results of the transition to exchange rate policy are ambiguous: against the background of low inflation and low volatility of the ruble exchange rate, there is a drop in real incomes of the population and a rise in real interest rates in the economy. The significant effect of the transfer of the exchange rate to inflation in the period 2014-2019 not identified.

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