The Puzzling Effect Of Money Shocks On Interest Rates

This study reexamines the controversial impact of changes in the growth rate of money supply on short-term nominal interest rates. Most of the early studies consistently find evidence that support a negative relationship between money shocks and interest rates. This relationship reflects the hypothesized liquidity effect. When the Fed accelerates the growth rate in money supply at given prices, output and inflation, the LM curve shifts, and real balances increase. Consequently, nominal an real interest rates are reduced. The results of the finite lag methods vary from one technique to another. However, the general trend points toward the vanishing liquidity effect. An infinite lag method which assumes a quadratic polynomial lag structure is also applied to data from 1972 through 1989. The results show a slight presence of the liquidity effect. The overall results also indicate that inflation rate as well as the variance of inflation rate slightly influence the relationship described above.

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ANALISIS FAKTOR DETERMINAN YANG MEMPENGARUHI TINGKAT INFLASI DI INDONESIA DENGAN ERROR CORRECTION MECHANISM

Jurnal Penelitan Ekonomi dan Bisnis ◽

10.33633/jpeb.v4i2.2547 ◽

2019 ◽

Vol 4 (2) ◽

pp. 120-131

Author(s):

Muhammad Basorudin

Keyword(s):

Growth Rate ◽

Interest Rates ◽

Error Correction ◽

Money Supply ◽

Inflation Rate ◽

Short Term ◽

Equilibrium Fluctuations ◽

Error Correction Mechanism

In general, inflation is considered an important problem that must be resolved given its serious effects such as an unstable economy, rising prices of goods, rising unemployment and other impacts. This study aims to determine the effect of Bank Indonesia Interest Rates on inflation in Indonesia and find out the effect of changes in the money supply in (M2) on inflation in Indonesia. The method used is Error Correction Mechanism (ECM). Based on the model it is known that the BI rate variable has a significant effect on inflation, meaning that the interest rates issued by Bank Indonesia affect the inflation rate in Indonesia. Then, the M2 Growth Rate variable has no significant effect on inflation. The coefficient value of (ECT (-1)) of -0,1921 shows that short-term equilibrium fluctuations will be corrected towards the equilibrium of the long equilibrium around 19.21%. The adjusment process occurs in the first month and the rest is an adjudication process that occurs in the following months.

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Macroeconomic Dynamics and the Manufacturing Output in Nigeria

Mediterranean Journal of Social Sciences ◽

10.2478/mjss-2018-0024 ◽

2018 ◽

Vol 9 (2) ◽

pp. 43-54 ◽

Cited By ~ 2

Author(s):

Adegbemi Babatunde Onakoya

Keyword(s):

Exchange Rate ◽

Interest Rate ◽

Money Supply ◽

Inflation Rate ◽

Manufacturing Sector ◽

Percent Level ◽

Negative Relationship ◽

Preliminary Evaluation ◽

Macroeconomic Factors ◽

The Impact

AbstractThis paper examined the impact of the changes in the macroeconomic factors on the output of the manufacturing sector in Nigeria from 1981 to 2015. Preliminary evaluation of the data was conducted using both descriptive statistics and stationarity evaluation. The test indicated that not all the variables are normal. The occurrence of order integration at first level difference necessitated the deployment of the Johansen cointegration test. The findings revealed no short run association among manufacturing output and each of GDP, exchange rate, broad money supply and unemployment rate. Negative relationship existed amongst inflation rate, interest rate, exchange rate, broad money supply on one hand, and manufacturing output. The inflation rate and interest rate, were statistically insignificant. However, significant and positive relationship existed between GDP of the previous year and unemployment on the one hand and manufacturing output on the other, at 5 percent level. The results showed that manufacturing was a veritable engine of economic growth. The post estimation tests showed presence of serial correlation but evidence of heteroscedasticity existed which, made the model inefficient, but its estimator is still unbiased. The study recommended the harmonization of both fiscal and monetary policies for the attainment of macroeconomic stability and avoidance of rapid policy summersaults.

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THE LIQUIDITY EFFECT OF MONEY SHOCKS ON SHORT-TERM INTEREST RATES: SOME INTERNATIONAL EVIDENCE

International Economic Journal ◽

10.1080/10168739800080028 ◽

1998 ◽

Vol 12 (4) ◽

pp. 49-63 ◽

Cited By ~ 1

Author(s):

BENJAMIN J. C. KIM ◽

NOOR A. GHAZALI

Keyword(s):

Interest Rates ◽

Liquidity Effect ◽

Short Term ◽

International Evidence ◽

Money Shocks

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Money supply, interest rate, exchange rate and oil price influence on inflation in South Africa

Corporate Ownership and Control ◽

10.22495/cocv8i3c6p3 ◽

2011 ◽

Vol 8 (3) ◽

pp. 594-605 ◽

Cited By ~ 2

Author(s):

Raphael Tabani Mpofu

Keyword(s):

Exchange Rate ◽

Interest Rate ◽

Interest Rates ◽

Money Supply ◽

Development Strategy ◽

Consumer Price Index ◽

Negative Relationship ◽

Oil Price ◽

Policy Framework ◽

Macroeconomic Variables

Price stability is critical for South Africa’s economic development strategy, and, based on previous studies, to effectively achieve this, requires a good understanding of the relationship between inflation and selected macroeconomic variables of broad money supply, interest rate, exchange rate and oil price. Monthly data are employed from January, 1999 through September, 2010. To determine this relationship, the independent variables were tested for multicollinearity, and thereafter a multiple regression model was developed. The findings from the study show that approximately 97% of the consumer price index movement is explained by the four macroeconomic variables. The study confirms that money supply and exchange rates have a strong positive relationship with inflation and have to be managed. Interest rates and oil price, on the other hand, have a significant negative relationship with inflation and should be part of a macroeconomic policy framework. This requires managing the delicate balance between a desirable level of inflation in support of economic growth and development and an unacceptable level of inflation that leads to price instability.

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Impact of Non-Performing Loans on Credit Growth in the Banking Industry in Tanzania: 2009 – 2018

Asian Journal of Economics Business and Accounting ◽

10.9734/ajeba/2021/v21i330357 ◽

2021 ◽

pp. 10-18

Author(s):

John P. Lihawa ◽

Deus D. Ngaruko

Keyword(s):

Growth Rate ◽

Regression Analysis ◽

Private Sector ◽

Interest Rates ◽

Inflation Rate ◽

Negative Impact ◽

Gdp Growth ◽

Credit Growth ◽

Gdp Growth Rate ◽

The Impact

This study adopted descriptive statistics and multiple regression analysis in investigating the impact of Non-Performing Loans (NPL) on credit growth to private sector in Tanzania, apart from NPL. The study also investigated the influence of interest rates, inflation rates and GDP on credit advancement to private sector in Tanzania. Using multiple linear regression analysis the study found that both NPL and interest rates have negative impact on the credit growth to private sector in Tanzania, with coefficient values of -0.323 and -0.263 for NPL and interest rate respectively. Furthermore, the study also found that Inflation rate and GDP growth rate have positive impact on the credit growth to private sector in Tanzania with coefficients of 0.247and 0.156 for inflation rate and GDP growth rate respectively. The study found that NPL has a significant negative impact on the credit growth by commercial bank to private sector in Tanzania. These results suggest that the central bank should continue to closely monitor and control the level of NPL in the economy and confine it below the threshold of 5% as stipulated by the BOT and IMF. The study also recommends that commercial banks should ensure that a thorough credit risk assessment is conducted when advancing loans to private sector.

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The Dependence of China’s Monetary Policy Rules on Interest Rate Regimes: Empirical Analysis Based on a Pseudo Output Gap

Sustainability ◽

10.3390/su11092557 ◽

2019 ◽

Vol 11 (9) ◽

pp. 2557

Author(s):

Xiaoyu Zhang ◽

Fanghui Pan

Keyword(s):

Growth Rate ◽

Monetary Policy ◽

Interest Rate ◽

Central Bank ◽

Interest Rates ◽

Policy Preferences ◽

Output Gap ◽

Policy Rules ◽

Monetary Policy Rules ◽

Nominal Interest Rates

Although a large number of scholars have studied the policy preferences and monetary policy rules of China’s central bank, most have found no evidence that China’s central bank has adjusted the nominal interest rates against the output gap. By constructing the pseudo output gap defined by the deviation of the real output growth rate and the target growth rate, this paper finds that China’s central bank prefers to adjust the nominal interest rates against the pseudo output gap. The monetary policy preferences and rules of China’s central bank in different interest rate regimes are investigated based on the threshold Taylor rule model. It is found that, in the high-interest-rate regime, the central bank adjusts the nominal interest against the inflation gap and the pseudo output gap, while in the low-interest-rate regime, there is no evidence that the central bank adjusts the nominal interest rates against the pseudo output gap. The lower bound of interest rate reduction and the weakening of interest rate policy effects caused by the liquidity trap of the interest rate are the possible reasons for China’s central bank not to adjust the nominal interest rates against the pseudo output gap.

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AUTONOMÍA DEL BANCO DE MÉXICO, CRECIMIENTO Y DISTRIBUCIÓN DEL INGRESO

Investigación Económica ◽

10.22201/fe.01851667p.2020.312.75370 ◽

2020 ◽

Vol 79 (312) ◽

pp. 5

Author(s):

Juan Alberto Vázquez Muñoz

Keyword(s):

Growth Rate ◽

Income Distribution ◽

Interest Rates ◽

Linear Relationship ◽

Labor Productivity ◽

Growth Rates ◽

Financial Services ◽

Inflation Rate ◽

Real Interest Rates ◽

Inflation Target

En agosto 1993 se otorgó autonomía al Banco de México y se le confirió el objetivo de mantener una tasa de inflación (π) baja y estable. En el presente artículo se muestra que: a) la tasa de crecimiento (g) de la economía mexicana exhibe una relación no lineal, en forma de U invertida, con π, y que lo mismo sucede con las tasas de crecimiento del sector manufacturero (m) y del sector de servicios financieros y de seguros (sf); b) la π que optimiza g, m y sf es distinta para cada caso, siendo menor y cercana al objetivo de inflación para el caso de sf; c) la tasa de crecimiento de las remuneraciones nominales ha servido como ancla de la inflación y ha conllevado a una redistribución regresiva del ingreso, y d) la consecución de una π baja y estable se ha acompañado de tasas de interés reales altas, lo cual ha deprimido la inversión y la tasa de crecimiento de la productividad laboral. BANCO DE MÉXICO’S INDEPENDENCE, GROWTH AND INCOME DISTRIBUTIONABSTRACTOn August 1993 the Banco de México was granted autonomy and charged with the objective of maintaining a low and stable inflation rate (π). This paper shows that: a) the growth rate (g) of the Mexican economy exhibits a non-linear relationship (an inverted U-shape) with π, and that the same is true of the growth rates of the manufacturing (m), the financial services and the insurance (sf) sectors; b) the π that optimizes g, m and sf is different for each case, being lower and close to the inflation target for the case of sf; c) the growth rate of the nominal remuneration has worked as an inflation anchor and has led to a regressive redistribution of income; and d) the achievement of a low and stable π has been accompanied by high real interest rates, which has depressed both investment and the growth rate of labor productivity.

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Monetary Policy and Domestic Investment in Nigeria: The Role of the Inflation Rate

Economics and Business ◽

10.2478/eb-2020-0010 ◽

2020 ◽

Vol 34 (1) ◽

pp. 139-155

Author(s):

Obinna Franklin Ezeibekwe

Keyword(s):

Monetary Policy ◽

Interest Rates ◽

Money Supply ◽

Inflation Rate ◽

Bank Lending ◽

Policy Tools ◽

Open Market ◽

Domestic Investment ◽

Inflation Rates ◽

The Impact

AbstractEconomic theory suggests that monetary policy can be used to stabilize an economy. However, the ability of monetary policy targets—interest rates and money supply—to stabilize an economy depends on their ability to achieve price stability. Using data from 1981 to 2018 and applying the vector error correction model, this paper seeks to determine how the changes in the inflation rate affect the ability of monetary policy tools to stabilize the Nigerian economy and stimulate investment. Empirical results suggest that the impact of the interest rates on investment depends on the level of the inflation rate. The size of the effect of interest rates on investment gets weaker as the inflation rate increases suggesting that monetary policy tools, such as the monetary policy rate (MPR), that directly change the interest rates are robust stabilization tools during periods of declining inflation rates but not relevant during periods of rising inflation rates. This is attributable to low bank lending rates. Additionally, the impact of the money supply target on investment does not depend on the level of the inflation rate. This suggests that monetary policy tools, such as open market operations, that directly change the money supply can be relevant stabilization tools during economic booms and recessions. As a result, the Central Bank of Nigeria should work to deepen the scale, capacity, and efficiency of its open market operations by ensuring that most of the people can participate with minimal transaction cost and by making different financial instruments available.

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A MONETARY ANALYSIS OF GHANA: EXAMINING THE IMPACT AND THE CAUSAL RELATIONSHIP BETWEEN MONETARY POLICY AND INFLATION IN GHANA

American Journal of Economics ◽

10.47672/aje.460 ◽

2020 ◽

Vol 4 (1) ◽

pp. 1-14

Author(s):

Edmund Obeng Amaning ◽

Ali Napari Seidu

Keyword(s):

Monetary Policy ◽

Interest Rates ◽

Causal Relationship ◽

Money Supply ◽

Time Series Data ◽

Positive Impact ◽

Negative Relationship ◽

Theory And Practice ◽

Series Data ◽

The Impact

Purpose: The main objective of the study was to examine the impact and the causal relationship between monetary policy and inflation in Ghana.Methodology: Annual time series data spanning from 1985 to 2017 with Auto Regressive Distributed Lagged (ARDL) model were employed for the analysis.Findings: The outcome from the study shows that, monetary policy rate had insignificant negative relationship with inflation in both the short and the long run. Again, interest rate, domestic investment and money supply were found to have significant positive impact on inflation in both the long and the short run for a specific period chosen for the study.The causal relationship shows that monetary policy rate granger causes money supply within the period understudyUnique contribution to theory and practice: The study recommends that policy makers need to keenly consider the levels of money supply in Ghana so as to ensure a stable retail price levels. The Government of Ghana needs to evaluate the prevailing levels of retail prices and set the interest rates on the 91-day Treasury bills because they are majorly treated as risk free rate hence determines other interest rates and inflation levels in Ghana.

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AN EMPIRICAL STUDY OF THE FISHER EFFECT AND THE DYNAMIC RELATION BETWEEN NOMINAL INTEREST RATE AND INFLATION IN SINGAPORE

The Singapore Economic Review ◽

10.1142/s0217590809003173 ◽

2009 ◽

Vol 54 (01) ◽

pp. 75-88 ◽

Cited By ~ 3

Author(s):

KING FUEI LEE

Keyword(s):

Interest Rate ◽

Interest Rates ◽

Inflation Rate ◽

Nominal Interest Rate ◽

Impulse Response Functions ◽

Fisher Effect ◽

Dynamic Relationship ◽

Long Run ◽

Price Puzzle ◽

Nominal Interest Rates

The Fisher Effect postulated that real interest rate is constant, and that nominal interest rate and expected inflation move one-for-one together. This paper employs Johansen's method to investigate for the existence of a long-run Fisher effect in the Singapore economy over the period 1976 to 2006, and finds evidence of a positive relationship between nominal interest rate and inflation rate while rejecting the notion of a full Fisher Effect. The dynamic relationship between nominal interest rate and inflation rate is also examined from the error-correction models derived, and the analysis is extended to investigate the impulse response functions of inflation and nominal interest rates where we discover the presence of the Price Puzzle in the Singapore market.

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