Liquidity: Its Origins and Implications in an Uncertain Multiperiod World with Limited Borrowing

1994 ◽  
Vol 38 (1) ◽  
pp. 36-46
Author(s):  
Edward Miller
Keyword(s):  
Interest Rate ◽  
Time Preference ◽  
Market Value ◽  
Cash Flows ◽  
Present Value ◽  
Capital Productivity ◽  
Inside Money ◽  
Future Consumption ◽  
Lending Rates ◽  
The Interest Rate

If borrowing rates exceed lending rates, liquid assets are held to provide an option on future consumption. The rate of time preference exceeds the interest rate. Thus the market value of marketable securities exceeds the present value at the rate of time preference of their cash flows. The interest rate is determined not merely by time preference and capital productivity, but is a number calculated from the values of liquid assets. Inside money has an impact.

Two Classics: Böhm-Bawerk's Positive Theory and Fisher's Rate of Interest Through Modern Prisms

1994 ◽  
Vol 16 (2) ◽  
pp. 202-228 ◽  
Author(s):  
Paul A. Samuelson
Keyword(s):  
Interest Rate ◽  
Time Preference ◽  
Positive Theory ◽  
Interest Theory ◽  
Net Productivity ◽  
The Interest Rate

Positive Theory of Capital (1889) is a classic which contains Eugen von Böhm-Bawerk's 1889 correct vision of how the interest rate might be determined by the interplay of systematic time preference (“impatience”) and time-phased technology's productivity. But he was not quite able to formulate his intuitive vision in terms that would satisfy today's persnickety jury of theorists. And indeed the classic Rate of Interest (1907) by his younger contemporary, Irving Fisher, seemed to be disagreeing with Böhm-Bawerk's treatment of time's net productivity; but, as Fisher was unable to make clear until 1930, he was objecting only to Böhm-Bawerk's formulation of the role of productivity in interest determination. In point of fact, Fisher, who was so long identified (wrongly, but understandably) as an “impatience theorist,” considered his own main contribution to interest theory to be his clarification of how the technological superiority of time-consuming processes cooperated in the determination of the equilibrium interest rate.

scholarly journals Taxes and the Structure of Production

1998 ◽  
Vol 16 (2) ◽  
pp. 145-159 ◽  
Author(s):  
Walter Block
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Interest Rate ◽  
Business Cycle ◽  
Time Preference ◽  
Causal Relation ◽  
Austrian Business Cycle ◽  
The Business Cycle ◽  
The Interest Rate ◽  
Structure Of Production

Abstract In Austrian theory, the business cycle is caused by expansive monetary policy, which artificially lowers the interest rate below equilibrium rates, necessarily lengthening the structure of production. Can tax alterations also cause an Austrian business cycle? Only if they affect time preference rates, the determinant of the shape of the Hayekian triangle. It is the contention of this paper that changes in taxes possibly can (but need not) impact time preference rates. Thus there may be a causal relation between fiscal policy and the business cycle, but this is not a necessary connection, as there is between monetary policy and the business cycle. This is contentious, since some Austrians argue that there is a praxeological link between tax policy and time preference rates.

scholarly journals El spread bancario frente a la regulación de tasas. / The bank spread facing the interest rate regulation.

2020 ◽  
pp. 18-35
Author(s):  
Iván Weigandi
Keyword(s):  
Interest Rate ◽  
Commercial Banks ◽  
Financial Statements ◽  
Rate Regulation ◽  
Time Deposit ◽  
Private Banks ◽  
Lending Rates ◽  
Financial Income ◽  
The Interest Rate ◽  
Effective Spread

Este trabajo busca analizar los efectos de la disposición de tasas activas máximas y tasas pasivas mínimas por parte del Banco Central de la República Argentina sobre el spread entre el cociente de ingresos financieros sobre los préstamos y el cociente de los egresos sobre los depósitos de los bancos privados que operaron en Argentina en el periodo 20122015. Luego de enumerar algunos modelos teóricos post-keynesianos para explicar cómo definen las diferentes tasas nominales los bancos comerciales, se analiza desde los estados financieros, como se comporto efectivamente el spread bajo las distintas regulaciones de la autoridad monetaria central. Los resultados demuestran que mas allá de las tasas máximas y mínimas, el spread efectivo no disminuyó, sino todo lo contrario. ABSTRACT: This paper aims to analyze the effects that maximum lending rates and minimum time deposit rates provided by the Central Bank of Argentina had on the spread between the ratio of financial income on loans, and the ratio of financial expenditures on the private banks deposits, operating in Argentina between 2012 and 2015. After reviewing some post-keynesians theories to explain how the commercial banks define the different nominal rates, this article analyzes, based on the financial statements, the actual spread behavior under the regulations of the central monetary authority. The results show that beyond the maximum and minimum rates, the effective spread does not decrease, but quite the opposite.

scholarly journals The Present Value of a Series of Cashflows: Convergence in a Random Environment

1995 ◽  
Vol 25 (2) ◽  
pp. 81-94 ◽  
Author(s):  
Andrew J. G. Cairns
Keyword(s):  
Interest Rate ◽  
Random Environment ◽  
General Class ◽  
Almost Sure Convergence ◽  
Sufficient Condition ◽  
Rate Process ◽  
Present Value ◽  
The Interest Rate

AbstractThe present paper considers the present value, Z(t), of a series of cashflows up to some time t. More specifically, the cashflows and the interest rate process will often be stochastic and not necessarily independent of one another or through time. We discuss under what circumstances Z(t) will converge almost surely to some finite value as t→∞. This problem has previously been considered by Dufresne (1990) who provided a sufficient condition for almost sure convergence of Z(t) (the Root Test) and then proceeded to consider some specific examples of such processes. Here, we develop Dufresne's work and show that the sufficient condition for convergence can be proved to hold for quite a general class of model which includes the growing number of Office Models with stochastic cashflows.

Interest Rate Pass-Through: Empirical Results for the Euro Area

2005 ◽  
Vol 6 (1) ◽  
pp. 37-78 ◽  
Author(s):  
Gabe J. de Bondt
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Euro Area ◽  
Vector Autoregressive ◽  
Empirical Results ◽  
Marginal Costs ◽  
Lending Rates ◽  
The Difference ◽  
Pass Through ◽  
The Interest Rate

Abstract This paper empirically examines the interest rate pass-through at the euro area level. The focus is on the pass-through of official interest rates, approximated by the overnight interest rate, to longer-term market interest rates, which, in turn, are a proxy for the marginal costs for banks to attract deposits or grant loans, and therefore passed through to retail bank interest rates. Empirical results, on the basis of a (vector) error-correction and vector autoregressive model, suggest that the pass-through of official interest to market interest rates is complete for money market interest rates up to three months, but not for market interest rates with longer maturities. Furthermore, the immediate pass-through of changes in market interest rates to bank deposit and lending rates is found to be at most 50%, whereas the final pass-through is typically found to be close to 100%, in particular for lending rates. Empirical results for a sub-sample starting in January 1999 show qualitatively similar findings and are supportive of a quicker interest rate pass-through since the introduction of the euro. It is shown that the difference between the adjustment speed of bank deposit and lending rates (typically around one versus three months since the common monetary policy) can to a large extent significantly be explained by credit risk considerations.

Markov Branching Decision Chains with Interest-Rate-Dependent Rewards

1995 ◽  
Vol 9 (1) ◽  
pp. 99-121 ◽  
Author(s):  
Ying Huang ◽  
Arthur F. Veinott
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Optimal Policy ◽  
Linear Program ◽  
Present Value ◽  
Constraint Matrix ◽  
Rate Dependent ◽  
Markov Decision ◽  
The Interest Rate ◽  
The One

Finite-state-and-action Markov branching decision chains are studied with bounded endogenous expected population sizes and interest-rate-dependent one-period rewards that are analytic in the interest rate at zero. The existence of a stationary strong-maximum-present-value policy is established. Miller and Veinott's [1969] strong policy-improvement method is generalized to find in finite time a stationary n-present-value optimal policy and, when the one-period rewards are rational in the interest rate, a stationary strong-maximum-present-value policy. This extends previous studies of Blackwell [1962], Miller and Veinott [1969], Veinott [1974], and Rothblum [1974, 1975], in which the one-period rewards are independent of the interest rate, and Denardo [1971] in which semi-Markov decision chains with small interest rates are studied. The problem of finding a stationary n-present-value optimal policy is also formulated as a staircase linear program in which the objective function and right-hand sides, but not the constraint matrix, depend on the interest rate, and solutions for all small enough positive interest rates are sought. The optimal solutions of the primal and dual are polynomials in the reciprocal of the interest rate. A constructive rule is given for finding a stationary n-present-value optimal policy from an optimal solution of the asymptotic linear program. This generalizes the linear programming approaches for finding maximum-reward-rate and maximum-present-value policies for Markov decision chains studied by Manne [1960], d'Epenoux [1960, 1963], Balinski [1961], Derman [1962], Denardo and Fox [1968], Denardo [1970], Derman and Veinott [1972], Veinott [1973], and Hordijk and Kallenberg [1979, 1984].

Valuation of the Firm in the Presence of Temporary Book-Tax Differences: The Role of Deferred Tax Assets and Liabilities

2000 ◽  
Vol 75 (1) ◽  
pp. 1-12 ◽  
Author(s):  
David A. Guenther ◽  
Richard C. Sansing
Keyword(s):  
Financial Reporting ◽  
Market Value ◽  
Cash Flows ◽  
Present Value ◽  
Deferred Tax Assets ◽  
Tax Deductions ◽  
Deferred Tax Liabilities ◽  
Deferred Tax ◽  
Future Cash Flows

This study uses an analytical model to investigate the value of the firm when there are temporary differences between when revenue and expense items are recognized for tax- and financial-reporting purposes. The model shows that deferred tax assets and liabilities transform book values of underlying liabilities and assets into estimates of the after-tax cash flows on which the firm's market value is based. The analysis shows that if tax deductions are taken on a cash basis, and if the underlying assets and liabilities are recorded at the present value of their associated future cash flows, then the value of deferred tax assets and deferred tax liabilities is their recorded amount, regardless of when the asset will be realized or when the liability will reverse. If tax deductions are not taken when the expenditure is made (e.g., depreciation) or if underlying assets and liabilities are recorded at more than the present value of their associated future cash flows (e.g., warranty liabilities), then the market value of deferred tax assets and deferred tax liabilities is less than their recorded values. The value of the deferred tax account is independent of when that account will reverse.

scholarly journals Corporate cash-pool valuation: a Monte Carlo approach

2018 ◽  
Vol 35 (1) ◽  
pp. 153-162
Author(s):  
Edina Berlinger ◽  
Zsolt Bihary ◽  
György Walter
Keyword(s):  
Monte Carlo ◽  
Interest Rate ◽  
Multinational Firms ◽  
Cash Flows ◽  
Counterparty Risk ◽  
High Interest Rate ◽  
Content Type ◽  
Economy Of Scale ◽  
Interest Rate Spread ◽  
The Interest Rate

Purpose This paper aims to analyze a special corporate banking product, the so-called cash-pool, which gained remarkable popularity in the recent years as firms try to centralize and manage their liquidity more efficiently. Design/methodology/approach A Monte Carlo simulation has been applied to assess the key benefits of the firms arising from the pooling of their cash holdings. Findings The main conclusion of the analysis is that the value of a cash-pool is higher in the case of firms with large, diverse and volatile cash flows having less access to the capital markets, especially if the partner bank is risky but offers a high interest rate spread at the same time. It is also shown that cash pooling is not the privilege of large multinational firms as the initial direct costs can be easily regained within a year even in the case of SMEs. Originality/value The novelty of this paper is the formalization of a valuation model. The literature emphasizes several benefits of cash pooling, such as interest rate savings, economy of scale and reduced cash flow volatility. The presented model focuses on the interest rate savings complemented with a new aspect: the reduced counterparty risk toward the bank.

scholarly journals Analisis pengaruh tingkat suku bunga, kredit macet dan capital adequacy ratio (CAR) terhadap penyaluran kredit modal kerja Bank Umum di Indonesia

2021 ◽  
Vol 16 (3) ◽  
pp. 437-450
Author(s):  
Rahma Nurjanah ◽  
Nurul Arida
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Commercial Bank ◽  
Linear Regression Analysis ◽  
Bank Lending ◽  
Multiple Linear Regression Analysis ◽  
Capital Adequacy ◽  
Capital Adequacy Ratio ◽  
Lending Rates ◽  
The Interest Rate

This study aims to determine and analyze interest rates on credit, bad credit, CAR, and lending to commercial banks in Indonesia. In addition, it is also to study the effect of lending rates, bad credit, and CAR on commercial bank lending in Indonesia in 2010-2018. The analytical method used in this research is descriptive quantitative. This study uses multiple linear regression analysis tools. The results of this study indicate that the interest rate, bad credit, and CAR variables simultaneously influence lending. Partially the interest rate variable has a negative and significant effect on lending. The non-performing loan variable has a negative and significant impact on credit distribution. The variable CAR has a positive and significant impact on lending.  Keywords: Landing, The Interest rate on loans, Bad loans, CAR

scholarly journals Asymmetric Interest Rate Transmission in an Inflation Targeting Framework: The Case of Colombia

2020 ◽  
Author(s):  
Arturo J. Galindo ◽  
Roberto Steiner
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Adjustment Process ◽  
Policy Tool ◽  
Linear Version ◽  
Lending Rates ◽  
Pass Through ◽  
The Interest Rate

After adopting an inflation targeting framework for monetary policy at the turn of the century, the Central Bank of Colombia started actively using the monetary policy interest rate as its key policy tool. In this regard, this paper examines the interest rate pass-through from the monetary policy rate to the retail rates in Colombia and explores asymmetries in the adjustment process within the framework of a non-linear version of the ARDL (NARDL) model developed by Shin et al. (2014). Our findings show that the policy rate plays a key role in determining deposit and lending retail rates but the nature of the pass-through varies across different types of lending products. In the case of lending rates, the pass-through is usually a full one, and takes around 12 months to be nearly complete. Our results capture an asymmetric positive pass-through in deposit rates and an upward rigidity in the lending rates of consumer and ordinary corporate loans, key segments of the credit market. These findings imply that most retail lending rates respond more to policy rate cuts than to hikes, indicating that financial intermediaries are more reluctant to raise interest rates than to decrease them following policy adjustments.

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