scholarly journals Liquidity Trap and Excessive Leverage

2016 ◽  
Vol 106 (3) ◽  
pp. 699-738 ◽  
Author(s):  
Anton Korinek ◽  
Alp Simsek
Keyword(s):  
Interest Rate ◽  
Aggregate Demand ◽  
Liquidity Trap ◽  
Interest Rate Policy ◽  
Macroprudential Policies ◽  
Ex Ante ◽  
Rate Policy ◽  
The Interest Rate ◽  
Insurance Decisions

We investigate the role of macroprudential policies in mitigating liquidity traps. When constrained households engage in deleveraging, the interest rate needs to fall to induce unconstrained households to pick up the decline in aggregate demand. If the fall in the interest rate is limited by the zero lower bound, aggregate demand is insufficient and the economy enters a liquidity trap. In this environment, households' ex ante leverage and insurance decisions are associated with aggregate demand externalities. Welfare can be improved with macroprudential policies targeted toward reducing leverage. Interest rate policy is inferior to macroprudential policies in dealing with excessive leverage. (JEL D14, E23, E32, E43, E52, E61, E62)

scholarly journals Central bank interest policy: conceptual concepts and socio-economic context

2021 ◽  
Vol 7 (Extra-E) ◽  
pp. 531-536
Author(s):  
Aleksandr N. Sukharev ◽  
Sergey N. Smirnov
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Interest Rate Policy ◽  
Economic Context ◽  
Negative Interest Rates ◽  
Interest Policy ◽  
Rate Policy ◽  
The Interest Rate

The article reveals the goals and mechanisms of the interest rate policy of the central bank. The role of the discount rate in ensuring financial and macroeconomic stability is shown. The Taylor rule is presented and justified in a modified form, by including the money supply parameter in it. The phenomenon of negative interest rates is revealed.

Downfall of the Regulatory System and Triumph of the Market

2020 ◽  
pp. 230-250
Author(s):  
Einar Lie
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Western Europe ◽  
Regulatory System ◽  
Exchange Rate Policy ◽  
Oil Price ◽  
Interest Rate Policy ◽  
Institutional Legitimacy ◽  
Rate Policy ◽  
The Interest Rate

This chapter discusses how, in the 1970s and 1980s, Norges Bank began to develop instruments with a view to steering economic policy under freer market conditions. However, governments of changing political hues were unwilling to let go of the low interest rate. The oil price fall in 1986 brought an abrupt change in interest rate and credit policy. The government’s tightening actions included the introduction of a more binding fixed exchange rate policy. The frequent recourse to corrective devaluations was to be a thing of the past. Hence, there was a justification for using the interest rate as an ongoing instrument to stabilize the exchange rate. This task fell to Norges Bank. The transition to an independent, active interest rate policy on the part of the central bank was abrupt and came as a surprise. Barely a year before the collapse of the oil price, the Storting had passed a law that made Norges Bank one of the least autonomous central banks in all of western Europe. Ultimately, it was the external situation, and in no sense an increase in government’s and the public’s recognition of the bank and its institutional legitimacy, that restored greater operative autonomy to Norges Bank.

Modeling of the interest rate policy of the central bank of Russia

2017 ◽  
Author(s):  
A. G. Shelomentsev ◽  
D. B. Berg ◽  
A. A. Detkov ◽  
A. P. Rylova
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Interest Rate Policy ◽  
Rate Policy ◽  
The Interest Rate

Depleting net worth of Russian banks: Changes in banks’ risk-taking and the interest rate policy of the Bank of Russia

2019 ◽  
pp. 30-55
Author(s):  
Mikhail E. Mamonov
Keyword(s):  
Interest Rate ◽  
Risk Taking ◽  
Banking Sector ◽  
Banking System ◽  
Bank Failures ◽  
Total Size ◽  
Interest Rate Policy ◽  
Net Worth ◽  
Rate Policy ◽  
The Interest Rate

Despite achieving success in the tight prudential regulation of the banking sector, the Bank of Russia (CB RF) continues to reveal new cases of negative net worth in banks. This paper investigates the influence of banks’ risk-taking and the interest rate policy of the CB RF on the depletion of net worth in Russian credit institutions during 2007—2017. The quartile regression approach is employed to examine the differences in net worth depletion of already failed banks; additionally, the Heckman selection approach is applied to analyze potential negative net worth that has not been revealed by the CB RF yet. The estimation results suggest that banks’ risk-taking matters: its increases are positively associated with the rises of the probability of bank failures and the size of negative net worth, conditional on failure. Ignoring of banks’ risktaking leads to a substantial upward bias in the estimates of the total size of negative net worth in the banking system — from 3.6 to 5.3 trillion rubles, or by 2% of the system’s total assets. Further, the interest rate policy of the CB RF has a risk-shifting effect: an increase of the key rate together with a rise of its volatility are associated with a further depletion of banks’ net worth. Finally, the paper shows that a joint increase in banks’ risk-taking and the key rate has a further negative effect on banks’ net worth.

Thinking afresh about central bank’s interest rate policy

2015 ◽  
Vol 7 (3) ◽  
pp. 221-232
Author(s):  
Gurbachan Singh
Keyword(s):  
Interest Rate ◽  
Aggregate Demand ◽  
Macroeconomic Policy ◽  
Policy Implications ◽  
Policy Regime ◽  
Content Type ◽  
Interest Rate Policy ◽  
Tax Subsidy ◽  
Subsidy Scheme ◽  
Rate Policy

Purpose – The purpose of the paper is to improve policy, and also to simplify theory and policy. Design/methodology/approach – Theory is used in a simple and yet powerful way. Stylized facts are used. This paper reconsiders the prevailing macroeconomic policy regime, and proposes an alternative policy regime. Findings – The low interest rate policy of the central bank in a recession is tantamount to imposition of tax on lenders’ interest income and a subsidy for borrowers implying an implicit tax-subsidy scheme. This scheme may be replaced by a different and explicit tax-subsidy scheme. This may also be supplemented by lower consumption taxes in a recession. From the viewpoint of stabilization of aggregate demand, the prevailing policy regime and the proposed policy regime can be equivalent. However, from the viewpoint of general macroeconomic and asset price stability, the proposed policy regime is superior, though it has (additional) cost of administration. Social implications – Macroeconomic and financial instability has large social cost. This paper can be useful in this context, as it has suggestions for improved macroeconomic policy. It also has policy implications for developing countries and highly indebted countries. Originality/value – This paper’s innovation goes well beyond refinements to prevailing theories and policies. Also, it paves the way for further research.

scholarly journals Monetary Policy Shocks in the Russian Economy and Their Macroeconomic Effects

2019 ◽  
Vol 14 (4) ◽  
pp. 48-75
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Empirical Evidence ◽  
Monetary Policy Shocks ◽  
Interest Rate Policy ◽  
Russian Economy ◽  
Policy Shocks ◽  
Rate Policy ◽  
The Interest Rate

This section conducts an estimate of the impulse response function of key macroeconomic variables to monetary policy shocks in Russia. The estimates are carried out through a dynamic factor model (DFM) of the Russian economy with structural identification of shocks by imposing various sets of sign restrictions on the behavior of endogenous variables. We restricted first the monetary aggregate M2 only (a decrease in response to an increase of the Key rate), and then—simultaneously—M2, real effective exchange rate (an increase), and GDP (a decrease). We estimated the DFM using a large dataset of 58 macroeconomic and financial variables. The estimation results suggest that there is no decreasing response of consumer prices to an exogenous tightening of the interest rate policy of the Central Bank of Russia. This empirical evidence is supported implicitly by DFM-based predictions that under the imposition of such a decreasing response as an identifying restriction to the model, a positive interest rate shock is not transmitted through the interest rate channel of monetary policy to expected increases of the interest rates on commercial loans and private deposits. However, existing empirical evidence refutes this model-based result. Therefore, this study supports the view according to which a tightening of monetary policy in Russia is inefficient in terms of restraining inflation. In addition, monetary policy shocks negatively affect investments, retail sales, export and import, real wages, and employment. Different economic activities react differently to monetary policy shocks: export-oriented activities are not sensitive to these shocks, whereas domestic pro-cyclical activities (e.g. construction) can be substantially depressed in response to unexpected increases of interest rates. Finally, the expectations of economic agents are also significantly affected by shocks in the interest rate policy of the Bank of Russia.

scholarly journals THE EFFECTIVENESS OF THE FUNCTIONING OF THE INTEREST RATE CHANNEL OF MONETARY TRANSMISSION IN UKRAINE

2021 ◽  
Author(s):  
Volodymyr Mishchenko ◽  
Svitlana Naumenkova ◽  
Svitlana Mishchenko
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Operating Conditions ◽  
Monetary Transmission ◽  
Basic Principles ◽  
Interest Rate Policy ◽  
National Bank ◽  
Rate Policy ◽  
The Interest Rate ◽  
Interest Rate Channel

Ensuring a high level of monetary regulation of the economy and improving the efficiency of the central bank's monetary policy largely depend on how effective is the mechanisms of transmission of monetary impulses from the decisions of monetary authorities to market participants through the use of monetary transmission. Given that in the current environment, interest rate policy is the main component of the monetary policy of the vast majority of central banks, interest rate channel is important in the process of monetary transmission. This is also due to the fact that in the monetary transmission system, the interest channel is most closely linked to the mechanisms of functioning of monetary, credit and currency channels. Solving this problem requires the identification the role of the interest channel in the mechanism of monetary transmission, the peculiarities of its function in current conditions, revealing clear causal links and the basic principles of the systematic regularity of monetary development. In addition, it is necessary to identify clear criteria and methods for assessing the effectiveness of the channel, as well as systems and indicators, which allow the use of several parameters in the flow of interest to the channel on the basis of monetary and macroeconomic indicators. The conducted research is based on the statistics of the National Bank of Ukraine for 2005-2020, the system of economic-statistical and economic-mathematical methods, as well as on the calculation of indicators, and is characterize the reliability of models. Quantitative assessment of the efficiency and operating conditions of the interest rate channel of the monetary transmission mechanism should be based on the basic principles of monetary theory and a reliable statistical base. This suggests ways to improve the efficiency of the interest rate channel through the central bank's interest rate policy, adequate money market conditions, and prudent government borrowing policies in the domestic market to ensure efficient transmission of monetary impulses from the central bank to the real sector of the economy. The results of the study can be used to substantiate the forecast parameters of monetary indicators of the monetary policy of the National Bank of Ukraine (NBU) and the conditions of effective functioning of the interest rate channel of monetary transmission in Ukraine in the medium term.

Price interactions in the Russian credit market: Who is fighting whom and when do banks facilitate collusion?

2017 ◽  
pp. 79-99 ◽  
Author(s):  
M. Mamonov
Keyword(s):  
Interest Rate ◽  
Business Cycle ◽  
Price Competition ◽  
Banking System ◽  
Credit Market ◽  
Interest Rate Policy ◽  
Price Wars ◽  
Rate Policy ◽  
The Interest Rate

This paper analyzes how banks react on the interest rate policy of their rivals when the industry-wide price competition is strengthening over different phases of business cycle in both retail and corporate segments of credit market in Russia. Our estimations, based on the models proposed in the literature on New Industrial Empirical Organization (NIEO), show that price wars are taking place from time to time in the retail as well as in the corporate segments of Russian credit market; more often - in periods of macroeconomic crisis, and are started by the banks from the top-30 group (in terms of assets, excluding Sberbank), the most warlike group within the Russian banking system. During the non-crisis periods banks are turning to facilitate collusions. The retail segment of credit market appears to be significantly more competitive as compared to the corporate one.

Sign in / Sign up

Export Citation Format

Share Document