Portfolio Behavior of Financial Institutions: An Empirical Study with Implications for Monetary Policy, Interest-Rate Determination, and Financial Model-Building.

1970 ◽  
Vol 25 (4) ◽  
pp. 981
Author(s):  
Edward M. Gramlich ◽  
William L. Silber
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Empirical Study ◽  
Financial Institutions ◽  
Model Building ◽  
Financial Model ◽  
Policy Interest

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

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.

Nominal Anchoring with Liquid Monetary Policy Assets

2016 ◽  
Author(s):  
Guillermo Calvo
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Central Bank ◽  
Rational Expectations ◽  
Policy Implications ◽  
Monetary Model ◽  
Rational Expectations Equilibrium ◽  
Policy Interest ◽  
Public Bonds

The chapter shows that existence of a unique Rational Expectations equilibrium can be ensured even if the Taylor Principle – stating that the policy interest rate increases by more than the increase in the expected rate of inflation – does not hold. This is shown by extending a barebones' central bank monetary model to the case in which liquidity is produced by both money and public bonds. The discussion concludes that liquidity considerations may have a critical impact on the monetary policy implications derived from the mainstream model.

scholarly journals The accuracy of professional forecasts and monetary policy in an emerging country

2016 ◽  
Vol 5 (4) ◽  
pp. 61-67
Author(s):  
Salminah Pulumo ◽  
Leroi Raputsoane
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
South African ◽  
Temporal Structure ◽  
Forecast Accuracy ◽  
Insurance Companies ◽  
Forecast Horizon ◽  
Emerging Country ◽  
International Banks ◽  
Policy Interest

This paper analyses the accuracy of professional forecasts of monetary policy interest rate decisions in South Africa since 2008. This is achieved by examining the dissimilarity between the professional forecasts of monetary policy stance and the realised monetary policy interest rate on the basis of proximity, temporal structure and sensitivity to forecast horizon. The results show that the forecasts of South African insurance companies and international banks are closest to the realised monetary policy interest rate on average based on proximity, while the forecasts of South African banks and interest groups are closest to the realised monetary policy interest rate based on temporal structure. The results finally show deterioration of the professional forecasts the further away the forecast horizon and that the heterogeneity in forecast accuracy neither emanates from the country of primary listing nor primary business of the professional forecasts groups.

scholarly journals The Impacts of Government Spending and Monetary Policy Rate in Indonesia

2021 ◽  
Vol 6 (6) ◽  
pp. 183-187
Author(s):  
Yuniarto Hadiwibowo ◽  
Akhmad Priharjanto
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Money Demand ◽  
Government Spending ◽  
Banking Sector ◽  
Correction Model ◽  
Money Balance ◽  
Vector Error Correction ◽  
Vector Error ◽  
Policy Interest

This study reviews the impacts of government policies on the economy. The period of analysis starts from early banking sector reform until the current Covid-19 pandemic crisis. We apply Vector Error Correction Model based on the theory of money demand and inflation to analyze the relationships among income, inflation, money balance, government spending, and policy interest rate. The impacts of money balance and policy interest rate on income are as predicted by money demand. Financial sector growth and different expectation on inflation affect the efficacy of monetary policy. On the other hand, government spending might not be fully growth-enhancing. The need emerges to classify and distinguish the classes of government spending which increase growth.

scholarly journals Central Bank Communication and Policy Interest Rate

2020 ◽  
Vol 12 (1) ◽  
pp. 76
Author(s):  
Haryo Kuncoro
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Central Bank Communication ◽  
Inflation Expectation ◽  
Expectation Gap ◽  
The Impact ◽  
Policy Interest

Central bank communications play an important role in the monetary policy. In the inflation-targeting frameworks, central bank communications might guide public to shape inflation expectations and then determine actual inflation rates through which the policy interest rates policy would manage them. This paper studied the impact and central bank monetary policy communications on the policy interest rate. Unlike other studies, this paper uses two stages. First, we estimate the impact of central bank communication on the inflation expectation gap. Second, we use the estimated value of inflation expectation gap to predict the policy interest rate. The study found evidence that economic agents analyse the Governor Board of Central Bank of Indonesia meeting decisions every month to shape their inflation expectation. Therefore, the difference between inflation expectation and actual inflation tends to narrow. The inflation expectation gap affects the policy interest rates in Indonesia. In other words, the policy interest rates can control the inflation rate and anchor expectations as required by the inflation-targeting framework.

Pass-through of Change in Policy Interest Rate to Market Rates

2008 ◽  
Vol 47 (4II) ◽  
pp. 661-674
Author(s):  
M. Idrees Khawaja ◽  
Sajawal Khan
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Cost Of Capital ◽  
Weighted Average ◽  
Pass Through ◽  
The Cost ◽  
Lag Structure ◽  
The Impact ◽  
Effectiveness Of Monetary Policy ◽  
Policy Interest

Monetary policy has been aggressively used by the central Bank of Pakistan, in this decade, first to bolster growth and then to contain rampant inflation. Despite the sufficiently tight monetary policy that has remained in vogue in recent times, the inflation is still around 20 percent. This has raised questions about the effectiveness of monetary policy. One possible reason for the lesser effectiveness, if not failure, of monetary policy in taming inflation could be that in recent times, inflation was primarily supply driven and that the monetary tightening was in part offset by fiscal expansion, on the back of heavy bank borrowing by the government. However one cannot rule out the possibility that market imperfections might have also impeded the effectiveness of monetary policy in taming inflation to the desired extent. Incomplete and slow pass through of changes in policy interest rate to deposit rate and lending rate is a kind of imperfection that constrains the effectiveness of monetary policy. This study examines the pass through of policy interest rate to different market rates. Monetary theory predicts that the change in policy interest rate influences the cost capital which in turn influences consumption, savings, investments, and hence output. However if the impact of the change in policy rate on the cost of capital is less than one for one or if the change in policy rate fails to influence the cost capital immediately then the impact on output would become visible only with a certain lag and the impact would be less than one for one. This implies that if for example only 70 percent of the change in policy rate is passed on to cost of capital, then to manage an increase of 100 basis points in cost capital the policy rate should be raised by 143 basis points. This example serves to emphasise that for effective monetary management knowledge of the magnitude of passthrough of policy rate and the lag structure with which the policy rate influences cost of capital is important. Substantive empirical evidence confirms that changes in policy interest rate are transmitted to the output with a certain lag and that the pass-through of changes in policy rate to output or to other elements of the transmission channel may be less than one for one. Given the policy implications of the information, on the magnitude of pass through and the lag structure with which the policy rate influences different market rates, this Paper seeks to measure the pass-through of the changes in six month Treasury bill rate to six month KIBOR, six month weighted average deposit rate and weighted average lending rate. The study is focused on Pakistan.

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