Monetary Policy When the Nominal Short-Term Interest Rate is Zero

Abstract For the past decades, income inequality has been on the rise, and so is the frequency of its mentions in recent speeches by central bankers. With the heightened importance of the topic, this research aims to study the impact of monetary policy on income inequality. The study used dynamic models for the analysis, namely; the Error-correction Model (ECM) and the Auto-regressive Distributed Lag (ARDL) model to determine the relationship in both the short- and long-run. The data used were the top 10% income share and the short-term interest rate. Our main hypothesis is that changes in the short-term interest rate have a significant impact on the top 10% income share. We draw time-series evidence from a sample of nine economies at different stages of development: United States, United Kingdom, Russia, Germany, France, Greece, China, South Africa and Chile. The findings support the hypothesis with interestingly varying effects across our sample. These results provide important implications that can contribute in bettering policy setting and add to the discussion of the role of central banks in reducing income inequality.

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Existence of Equilibrium for Segmented Markets Models with Interest Rate Monetary Policies

Contributions in Theoretical Economics ◽

10.2202/1534-5971.1288 ◽

2006 ◽

Vol 6 (1) ◽

Author(s):

Filippo Occhino

Keyword(s):

Monetary Policy ◽

Interest Rate ◽

Financial Markets ◽

Nominal Interest Rate ◽

Short Term ◽

Monetary Policies ◽

Segmented Markets ◽

Monetary Analysis ◽

Maximum Value ◽

Similar Proof

Several studies have recently adopted the segmented markets model as a framework for monetary analysis. The characteristic assumption is that some households never participate in financial markets. This paper proves the existence of an equilibrium for segmented markets models where monetary policy is defined in terms of the short-term nominal interest rate. The model allows us to consider the important cases where monetary policy affects output, and responds to any sources of uncertainty, including output itself. The assumptions required for existence constrain the maximum value and the variability of the nominal interest rate. The period utility function is logarithmic. The proof is constructive, and shows how the model can be solved numerically. A similar proof can be used in the case that monetary policy is defined in terms of the bond supply.

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Transmission of Monetary Policy through Credit Interest Rates in Turkey: A Microeconomic Perspective

Business and Economic Research ◽

10.5296/ber.v11i4.19257 ◽

2021 ◽

Vol 11 (4) ◽

pp. 122

Author(s):

Ilyas Siklar

Keyword(s):

Monetary Policy ◽

Interest Rate ◽

Interest Rates ◽

Short Term ◽

Dynamic Panel Model ◽

Panel Model ◽

Loan Interest Rates ◽

High Degree ◽

Transmission Of Monetary Policy ◽

Policy Interest

This study aims to examine the monetary policy transmission through the credit channel from a microeconomic perspective by using the fixed effect dynamic panel model. It is estimated to what extent policy interest rate changes are transferred to the short-term interest rate depending on the type of loan. Results confirm that there is a high degree of inertia in both the commercial and consumer loan interest rates. In terms of the transmission of monetary policy, changes in policy interest rates are transferred to commercial loan interest rates by 11% and consumer loan interest rates by 15% in the short term. These values reveal that policy interest rate changes are gradually transmitted to market interest rates. Variables representing bank size, leverage, and market power in terms of distinctive characteristics have a limited impact on both commercial and consumer loan interest rates in the analyzing period. However, the market share of a bank has a significant impact on both commercial and consumer loan rates.

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Assessing the Role of Money versus Interest Rate in Pakistan

The Pakistan Development Review ◽

10.30541/v59i1pp.101-114 ◽

2020 ◽

Vol 59 (1) ◽

pp. 101-114

Author(s):

Zafar Hayat ◽

Muhammad Nadim Hanif

Keyword(s):

Monetary Policy ◽

Interest Rate ◽

Relative Effectiveness ◽

Policy Instruments ◽

Jel Classification ◽

Short Term ◽

Price Puzzle ◽

The Interest Rate ◽

The Impact

We have empirically examined the role of monetary aggregate(s) vis-à-vis short-term interest rate as monetary policy instruments, and the impact of State Bank of Pakistan’s transformation into the latter on their relative effectiveness in terms of inflation in Pakistan. Using indicators of ‘persistent changes’ in the underlying behaviours of variables of interest, we found that broad money consistently explains inflation in (i) monetary (ii) transitory and (iii) interest rate regimes. Though its role has receded while moving from the transition to the interest rate regime, the interest rate instrument seems to be positively related to inflation, a phenomenon commonly known as price puzzle. In light of these findings, we recommend that the role of money should not be completely de-emphasised. JEL Classification: E31, E52. Keywords: Monetary Policy Instruments, Price Puzzle, ARDL, Pakistan

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Monetary Policy Announcements and Short-Term Interest Rate Futures Volatility: Evidence from the Mexican Market

International Finance ◽

10.1111/j.1468-2362.2012.01303.x ◽

2012 ◽

Vol 15 (2) ◽

pp. 225-250 ◽

Cited By ~ 3

Author(s):

Renata Herrerías ◽

Pedro Gurrola

Keyword(s):

Monetary Policy ◽

Interest Rate ◽

Short Term ◽

Interest Rate Futures

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Großbritannien – ein europäischer Spielverderber? Das britische Opting-Out aus ökonomischer Sicht

Zeitschrift für Wirtschaftspolitik ◽

10.1515/zfwp-1996-0306 ◽

1996 ◽

Vol 45 (3) ◽

Author(s):

Philip Nölling

Keyword(s):

Monetary Policy ◽

Interest Rate ◽

Central Bank ◽

Interest Rates ◽

European Central Bank ◽

Short Term ◽

Economic Reason ◽

Opting Out ◽

European Central ◽

The Uk

AbstractWith the beginning of EMU there will be only one monetary policy with a single short term interest rate. In order for common monetary policy to be successful EMU member states have to react similarly to monetary signals from the European Central Bank (ECB). Because of its unique sensitivity to short term interest rates, this would not be the case for the UK. If, for example, the ECB would raise the short term interest rates by an amount which is appropriate for countries like France and Germany, the UK might sink into recession. This shows that besides political reasons there is also an economic reason for the UK’s opting-out from EMU.

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The Four Equation New Keynesian Model

Review of Economics and Statistics ◽

10.1162/rest_a_01071 ◽

2021 ◽

pp. 1-45

Author(s):

Eric Sims ◽

Jing Cynthia Wu ◽

Ji Zhang

Keyword(s):

Monetary Policy ◽

Interest Rate ◽

New Keynesian ◽

New Keynesian Model ◽

Short Term ◽

Natural Rate ◽

Keynesian Model ◽

Bond Portfolio ◽

Linearized Model ◽

Credit Shocks

Abstract This paper develops a New Keynesian model featuring financial intermediation, short- and long-term bonds, credit shocks, and scope for unconventional monetary policy. The log-linearized model reduces to four equations – Phillips and IS curves as well as policy rules for the short-term interest rate and the central bank's long-bond portfolio (QE). Credit shocks and QE appear in both the IS and Phillips curves. In equilibrium, optimal monetary policy entails adjusting the short-term interest rate to offset natural rate shocks, but using QE to offset credit market disruptions. Use of QE significantly mitigates the costs of a binding zero lower bound.

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