scholarly journals Constrained interest rates and changing dynamics at the zero lower bound

2019 ◽  
Vol 24 (2) ◽  
Author(s):  
Gregor Bäurle ◽  
Daniel Kaufmann ◽  
Sylvia Kaufmann ◽  
Rodney Strachan
Keyword(s):  
Interest Rate ◽  
Lower Bound ◽  
Interest Rates ◽  
Stochastic Volatility ◽  
Risk Premium ◽  
Information Criterion ◽  
The State ◽  
State Transitions ◽  
Zero Lower Bound ◽  
The Interest Rate

AbstractThe interaction of macroeconomic variables may change as nominal short-term interest rates approach zero. In this paper, we propose to capture these changing dynamics with a state-switching parameter model which explicitly takes into account that the interest rate might be constrained near the zero lower bound by using a Tobit model. The probability of state transitions is affected by the lagged level of the interest rate. The endogenous specification of the state indicator permits dynamic conditional forecasts of the state and the system variables. We use Bayesian methods to estimate the model and to derive the forecast densities. In an application to Swiss data, we evaluate state-dependent impulse-responses to a risk premium shock identified with sign-restrictions. We provide an estimate of the latent rate, i.e. the rate lower than the constraint on the interest rate level which would be state- and model-consistent. Additionally, we discuss scenario-based forecasts and evaluate the probability of exiting the ZLB region. In terms of log predictive scores and the Bayesian information criterion, the model outperforms a model substituting switching with stochastic volatility and another including intercept switching only combined with stochastic volatility.

scholarly journals A Model of Monetary Transmission Mechanism

2020 ◽  
Author(s):  
Yuuki Maruyama
Keyword(s):  
Interest Rate ◽  
Lower Bound ◽  
Risk Aversion ◽  
Risk Premium ◽  
Market Price ◽  
Zero Lower Bound ◽  
Government Bonds ◽  
Total Investment ◽  
The Interest Rate ◽  
Interest Rate Channel

The point of this model is that total investment in the economy is not determined by the equilibrium of the interest rate alone, but by the equilibrium of both the interest rate and the market price of risk (risk premium). In this model, the lower the discount rate or risk aversion of people, the higher the total investment. This model shows that when the interest rate is not at the zero lower bound, the total investment is only slightly affected by people's risk aversion, but at the zero lower bound, the total investment is inversely proportional to people's risk aversion. In addition, this model is used to analyze monetary policy. It is shown that the interest rate channel and the credit channel can be analyzed with the same formula and the effect of the interest rate channel is small. This explains why a central bank can greatly increase the total investment with small changes in the interest rate. Additionally, this paper analyzes fiscal policy, helicopter money, and government bonds.

The Case for Imposing Cashlessness: A Review Article

2018 ◽  
Vol 56 (4) ◽  
pp. 1587-1591
Author(s):  
Neil Wallace
Keyword(s):  
Fiscal Policy ◽  
Interest Rate ◽  
Lower Bound ◽  
Central Bank ◽  
Review Article ◽  
Zero Lower Bound ◽  
Illegal Activity ◽  
The Interest Rate

In The Curse of Cash, Rogoff (2016) makes two arguments. (i) Large denominations of currency are primarily used for illegal activity. Therefore, eliminating them would have benefits that far outweigh the costs in terms of lost seigniorage. (ii) The zero lower bound (ZLB) on the interest rate implied by the possibility of holding large amounts of currency is a costly constraint on central-bank policy. The best way to eliminate the ZLB is to eliminate all but small denominations of currency, ten dollars and lower, and to have those be in the form of coins. The style of the book, no models and no symbols, works fairly well for (i), but not so well for (ii). For (ii), the author is unclear about a crucial matter: what fiscal policy accompanies alternative interest-rate settings chosen by the central bank? ( JEL E26, E42, E43, E52, E58, E62)

scholarly journals The Empirical Implications of the Zero Lower Bound on the Interest Rate: The Case of the Czech Economy

2016 ◽  
Vol 64 (2) ◽  
pp. 603-616 ◽  
Author(s):  
Miroslav Hloušek
Keyword(s):  
Interest Rate ◽  
Lower Bound ◽  
Zero Lower Bound ◽  
Inflation Volatility ◽  
Percentage Points ◽  
Monetary Policy Rule ◽  
Tradable Sector ◽  
The Interest Rate ◽  
Macroeconomic Implications ◽  
Empirical Implications

This paper uses an estimated DSGE model of the Czech economy to study the macroeconomic implications of various shocks when the interest rate is constrained by the zero lower bound. The goal is to identify which shocks represent threats for the economy and how large the distortions are. The results show that four single shocks can take the economy to the zero lower bound, and that of the four, productivity shock in the tradable sector is the most dangerous. The consequences for the behaviour of macroeconomic variables are nontrivial and, quite naturally, increase with the size of the shock and the frequency of occurrence. If the economy is subject to all model specific shocks, there are distortions in terms of lower average values of output and consumption (by more than one percentage point) and higher inflation volatility (by more than six percentage points). To reduce these costs, the central bank should give higher weight to inflation and lower weight to the output gap in monetary policy rule.

scholarly journals PERBANDINGAN PENGARUH SUKU BUNGA DAN INFLASI TERHADAP KREDIT DAN PEMBIAYAAN (Studi Kasus pada Bank Umum Konvensional dan Bank Umum Syariah periode 2011-2015)

IQTISHODUNA ◽  
2017 ◽  
Vol 12 (2) ◽  
pp. 91-97
Author(s):  
Hasannudin Nursalim Putra ◽  
Irnin Miladyan Aryq ◽  
Lilik Jazilatul Mufidah
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Path Analysis ◽  
The State ◽  
Financial Policy ◽  
The Third ◽  
The Interest Rate ◽  
Policy Interest

Inflationary pressures that often time there was a can shake economy the state, to face inflationarypressures one of the efforts of the country to control the inflation is by issuing policy interest rate by theIndonesia bank as central financial policy monetary and fiscal. The banks have the role of to control the rateinflation. The interest rate that set by the bank will affect the level distribution credit of bank conventional andfinancing of sharia bank. For that researchers want to see the influence of direct and indirect interest rates tocredit and financingand inflation as variable intervening. The kind of research is quantitative with the sampleof six general Sharia Bank and the generalconventional bank in Indonesia period 2011 until 2015 taken withpurposive sampling. Themethod is path analysis. Based onsignificant test, the first significant test has resultthat interest rates significant of inflation. Thesecond significant testhas results that the interest rate notsignificant on the distribution credit and financing. The third significant test has result that inflation is notsignificant to distribution credit and financing. So this is can concluded that inflation will not be variableintervening for the distribution credit and financing.

scholarly journals INFORMATION VALUE OF THE INTEREST RATE AND THE ZERO LOWER BOUND

2019 ◽  
Vol 24 (7) ◽  
pp. 1758-1784
Author(s):  
Sang Seok Lee
Keyword(s):  
Interest Rate ◽  
Lower Bound ◽  
Information Structure ◽  
Information Value ◽  
New Keynesian ◽  
Zero Lower Bound ◽  
Keynesian Model ◽  
State Of The Economy ◽  
The Interest Rate ◽  
The Cost

Why is a zero lower bound episode long-lasting and disruptive? This paper proposes the interruption of information flow from the central bank’s interest rate decision to the private sector as a channel by which the destabilizing effect of the zero lower bound constraint on the nominal interest rate is amplified. This mechanism is incorporated into the new Keynesian model by modifying its information structure. This paper shows that the information loss at the zero lower bound can increase (a) the duration of the zero lower bound episodes and (b) the size of deflation and output gap loss. The result in this paper demonstrates that enhanced information sharing by the central bank about the state of the economy can be effective at alleviating the cost of the zero lower bound.

scholarly journals Die Auswirkungen Der Zinspolitik Im Bankensystem Und Bei Immobilienentwicklungen / The Impact Of Interest Rate Policy, On The Banking System And On Real Estate Development

2016 ◽  
Vol 6 (2) ◽  
pp. 13-25
Author(s):  
Pamela Priess
Keyword(s):  
Interest Rate ◽  
Real Estate ◽  
Interest Rates ◽  
Risk Premium ◽  
Real Estate Market ◽  
Liquidity Premium ◽  
Interest Rate Policy ◽  
Rate Policy ◽  
The Interest Rate ◽  
The Impact

Abstract The research purpose is to find out if signs of a real estate bubble are shown at the austrian real estate market right now. Lending rates are composed of different factors: the base rate is the price that the customer is willing to pay. The risk premium is given to compensate the lenders risk of full or partial failure of repayment. The inflation adjustment takes into account the impairment of money over the term of a loan. The liquidity premium increases with extension of the term of the loan. The European Central Bank influences the interest rate policy by varying the interest for money saved there by the banks. At the moment there are used negative interest rates, i.e. penalty interest. The methodology used was that recently the ECB lowered the interest rates which might cause real estate bubbles and, subsequently, banks and economic crises may follow, if interest rates were to be increased again sooner or later. Therefor the author studied the amount of sales and the connection to the interest rates and the interest rate policy of the banks right now. Summarizing it can be seen that in Kittsee, an Austrian area with a lot of real estate sales, as an example, 565 real estate properties were sold in the years 2005 to 2015, the median prices increased in relation to the buyers residence in Austria or non- Austrians at about 375% to 490%, this might indicate signs of change on the market.

scholarly journals Monetary Policy and Corporate Bond Returns

2020 ◽  
Vol 10 (3) ◽  
pp. 441-489 ◽  
Author(s):  
Haifeng Guo ◽  
Alexandros Kontonikas ◽  
Paulo Maio
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Risk Premium ◽  
Corporate Bond ◽  
Term Premium ◽  
Bond Returns ◽  
Policy Shocks ◽  
The Interest Rate ◽  
The Impact

Abstract We investigate the impact of monetary policy shocks on excess corporate bonds returns. We obtain a significant negative response of bond returns to policy shocks, which is especially strong among low-grading bonds. The largest portion of this response is related to higher expected bond returns (risk premium news), while the impact on expectations of future interest rates (interest rate news) plays a secondary role. However, the interest rate channel is dominant among high-grading bonds and Treasury bonds. Looking at the two components of bond premium news, we find that the dominant channel for high-rating (low-rating) bonds is term premium (credit premium) news. (JEL 44, E52, G10, G12) Received: March 25, 2019: Editorial decision: March 27, 2020 by Editor: Hui Chen. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Sign in / Sign up

Export Citation Format

Share Document