Heterogeneous Information About the Term Structure of Interest Rates, Least-Squares Learning and Optimal Interest Rate Rules for Inflation Targeting

2004 ◽  
Author(s):  
Eric Schaling ◽  
Sylvester C. W. Eijffinger ◽  
M. F. F. Tesfaselassie
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Least Squares ◽  
Term Structure ◽  
Inflation Targeting ◽  
Interest Rate Rules ◽  
Heterogeneous Information ◽  
Least Squares Learning

scholarly journals The term structure of interest rates and inflation forecast targeting

2011 ◽  
Vol 12 (2) ◽  
pp. 162-179
Author(s):  
Eric Schaling ◽  
Willem Verhagen ◽  
Sylvester Eiffinger
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Term Structure ◽  
Inflation Targeting ◽  
Nominal Interest Rate ◽  
Term Spread ◽  
State Of The Economy ◽  
Output Persistence

This paper examines the implications of the expectations theory of the term structure of interest rates for the implementation of inflation targeting. We show that the responsiveness of the central bank’s instrument to the underlying state of the economy is increasing in the duration of the long-term bond.  On the other hand, an increase in duration will make long-term inflationary expectations - and therefore also the long-term nominal interest rate - less responsive to the state of the economy. The extent to which the central bank is concerned with output stabilisation will exert a moderating influence on the central bank’s response to leading indicators of future inflation. However, the effect of an increase in this parameter on the long-term nominal interest rate turns out to be ambiguous. Next, we show that both the sensitivity of the nominal term spread to economic fundamentals and the extent to which the spread predicts future output, are increasing in the duration of the long bond and the degree of structural output persistence. However, if the central bank becomes relatively less concerned about inflation stabilisation the term spread will be less successful in predicting real economic activity.

scholarly journals CANDIDE et la monnaie

2009 ◽  
Vol 52 (1) ◽  
pp. 75-103
Author(s):  
Jean-Pierre Aubry ◽  
Pierre Duguay
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Structural Equations ◽  
Reduced Form ◽  
Real Sector ◽  
Short Term ◽  
The Real ◽  
Structure Equations

Abstract In this paper we deal with the financial sector of CANDIDE 1.1. We are concerned with the determination of the short-term interest rate, the term structure equations, and the channels through which monetary policy influences the real sector. The short-term rate is determined by a straightforward application of Keynesian liquidity preference theory. A serious problem arises from the directly estimated reduced form equation, which implies that the demand for high powered money, but not the demand for actual deposits, is a stable function of income and interest rates. The structural equations imply the opposite. In the term structure equations, allowance is made for the smaller variance of the long-term rates, but insufficient explanation is given for their sharper upward trend. This leads to an overstatement of the significance of the U.S. long-term rate that must perform the explanatory role. Moreover a strong structural hierarchy, by which the long Canada rate wags the industrial rate, is imposed without prior testing. In CANDIDE two channels of monetary influence are recognized: the costs of capital and the availability of credit. They affect the business fixed investment and housing sectors. The potential of the personal consumption sector is not recognized, the wealth and real balance effects are bypassed, the credit availability proxy is incorrect, the interest rate used in the real sector is nominal rather than real, and the specification of the housing sector is dubious.

Optimal Interest Rate Rules in Inflation Targeting Frameworks

2001 ◽  
Author(s):  
José A. Rodrigues Neto ◽  
Fabio Araujo ◽  
Marta B.J. Moreira
Keyword(s):  
Interest Rate ◽  
Inflation Targeting ◽  
Interest Rate Rules

scholarly journals The Rising Cost of Climate Change: Evidence from the Bond Market

2021 ◽  
pp. 1-45
Author(s):  
Michael D. Bauer ◽  
Glenn D. Rudebusch
Keyword(s):  
Climate Change ◽  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Mitigation Strategies ◽  
Social Cost Of Carbon ◽  
Carbon Mitigation ◽  
Interest Rate Models ◽  
Real Rate ◽  
The Social

Abstract Social discount rates (SDRs) are crucial for evaluating the costs of climate change. We show that the fundamental anchor for market-based SDRs is the equilibrium or steady-state real interest rate. Empirical interest rate models that allow for shifts in this equilibrium real rate find that it has declined notably since the 1990s, and this decline implies that the entire term structure of SDRs has shifted lower as well. Accounting for this new normal of persistently lower interest rates substantially boosts estimates of the social cost of carbon and supports a climate policy with stronger carbon mitigation strategies.

The Term Structure of Interest Rates: Theory, Models of Interest-Rate Forecasting, and Empirical Evidence

1971 ◽  
Vol 26 (5) ◽  
pp. 1178
Author(s):  
Joseph F. Sinkey
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Empirical Evidence ◽  
Term Structure

Central bank transparency, inflation targeting and monetary policy: a panel data approach

2018 ◽  
Vol 45 (6) ◽  
pp. 1159-1174 ◽  
Author(s):  
Gabriel Caldas Montes ◽  
Cristiane Gea
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Panel Data ◽  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Content Type ◽  
Central Bank Transparency ◽  
Policy Interest

Purpose The evidence concerning the effects of the inflation targeting (IT) regime as well as greater central bank transparency on monetary policy interest rates is not conclusive, and the following questions remain open. What is the effect of adopting IT on both the level and volatility of monetary policy interest rate? Does central bank transparency affect the level of the monetary policy interest rate and its volatility? Are these effects greater in developing countries? The purpose of this paper is to contribute to the literature by answering these questions. Hence, the paper analyzes the effects of IT and central bank transparency on monetary policy. Design/methodology/approach The analysis uses a sample of 48 countries (31 developing) comprising the period between 1998 and 2014. Based on panel data methodology, estimates are made for the full sample, and then for the sample of developing countries. Findings Countries that adopt the IT regime tend to have lower levels of monetary policy interest rates, as well as lower interest rate volatility. The effect of adopting IT on both the level and volatility of the basic interest rate is smaller in developing countries. Besides, countries with more transparent central banks have lower levels of monetary policy interest rates, as well as lower interest rate volatility. In turn, the effect of central bank transparency on both the level and volatility of the basic interest rate is greater in developing countries. Practical implications The study brings important practical implications regarding the influence of both the IT regime and central bank transparency on monetary policy. Originality/value Studies have sought to analyze whether IT and central bank transparency are effective to control inflation. However, few studies analyze the influence of IT and central bank transparency on interest rates. This study differs from the few existing studies since: the analysis is done not only for the effect of transparency on the level of the monetary policy interest rate, but also on its volatility; the central bank transparency index that is used has never been utilized in this sort of analysis; and the study uses panel data methodology, and compares the results between different samples.

scholarly journals Komparasi Jalur Moneter untuk Stabilitas Harga Dalam Kerangka Inflation Targeting Framework (Studi kasus pada interest rate, exchange rate dan credit channel)

2019 ◽  
Vol 8 (3) ◽  
pp. 181
Author(s):  
Setyo Tri Wahyudi ◽  
Rinny Apriliany Zakaria ◽  
Nurul Badriyah
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Error Correction ◽  
Inflation Targeting ◽  
Correction Term ◽  
Secondary Data ◽  
Credit Channel ◽  
The Right

The monetary policy transmission mechanism has many ways in influencing inflation. This method became known as the monetary path. The use of appropriate channels in monetary policy will affect whether or not the objectives of the monetary policy are achieved. This study aims to determine which monetary path is appropriate for Indonesia, which is a developing country with an open economic system. The data used are secondary data taken from Bank Indonesia for the period 2005 to 2016. The research variables include inflation, BI-rate, credit interest rates (SBB), gross domestic product (GDP), exchange rate, bank reserve (BBR), and the amount of credit extended. This study focuses on the path of interest rates, exchange rates and bank credit using the Error Correction Model (ECM). The results of this study indicate that the right monetary path for Indonesia is the credit channel. This is because the value of the Error Correction Term (ECT) coefficient on the ECM model shows that the coefficient of the credit channel is smaller than the interest rate and exchange rate channel, which means that the imbalance that occurs can be resolved more quickly with the credit channel.

Does the slope of the yield curve of the interbank market influence prices on the Warsaw Stock Exchange? A sectoral perspective

2021 ◽  
Vol 67 (4) ◽  
pp. 294-307
Author(s):  
Ewa Majerowska ◽  
Jacek Bednarz
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Yield Curve ◽  
Stock Exchange ◽  
Rate Curve ◽  
Daily Data ◽  
Warsaw Stock Exchange ◽  
The Interest Rate ◽  
Relationship Of

The interest rate curve is often viewed as the leading indicator of economic prosperity in a broad sense. This paper studies the ability of the slope of the yield curve in the term structure of interest rates to impact the sectoral indices on the Warsaw Stock Exchange, using daily data covering the period from 1 January 2001 to 30 September 2020. The results of the research indicate an ambiguous dependence of the logarithmic rates of return of sub-indices on the change of the interbank interest rate curve. The only sectors showing a clear relationship of this type is energy and pharmaceuticals.

Yield Curves, Swap Curves, and Term Structure of Interest Rates

2019 ◽  
pp. 203-228
Author(s):  
Tom P. Davis ◽  
Dmitri Mossessian
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Yield Curve ◽  
Yield Curves ◽  
No Arbitrage ◽  
Interest Rate Swap ◽  
The Interest Rate ◽  
Rate Swap ◽  
The U.S

This chapter discusses multiple definitions of the yield curve and provides a conceptual understanding on the construction of yield curves for several markets. It reviews several definitions of the yield curve and examines the basic principles of the arbitrage-free pricing as they apply to yield curve construction. The chapter also reviews cases in which the no-arbitrage assumption is dropped from the yield curve, and then moves to specifics of the arbitrage-free curve construction for bond and swap markets. The concepts of equilibrium and market curves are introduced. The details of construction of both types of the curve are illustrated with examples from the U.S. Treasury market and the U.S. interest rate swap market. The chapter concludes by examining the major changes to the swap curve construction process caused by the financial crisis of 2007–2008 that made a profound impact on the interest rate swap markets.

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