scholarly journals How Monetary Policy Affects the Lending and Economic Activity in a Banking System with Excess Liquidity

2021 ◽  
Vol 18 (2) ◽  
pp. 51-60
Author(s):  
Dashmir Saiti ◽  
Gjorgji Gockov ◽  
Borce Trenovski
Keyword(s):  
Central Bank ◽  
Interest Rates ◽  
Economic Activity ◽  
Inflation Rate ◽  
Banking System ◽  
Real Gdp ◽  
Long Run ◽  
Excess Liquidity ◽  
Short Run ◽  
The Republic

Abstract Research purpose. The purpose of this paper is to examine the efficiency of the transmission mechanism of the monetary policy in a banking system with excess liquidity. More specifically, it aims to examine how the interest rates of the central bank bills and inflation rate affect total lending and the overall economic activity in the country. For this purpose, the analysis is based on the case of the Republic of North Macedonia, whose banking system has exhibited excess liquidity in the past decade. Design / Methodology / Approach. The paper is based on two different VECM models, analyzing the impact of the central bank bills interest rates and the inflation rate, on lending and real GDP in the Republic of North Macedonia, for the period 2000 – 2019. The analysis also encompasses unit root tests for the variables of interest in order to determine their order of integration and choose appropriate statistical methods. The short-run causality is assessed using the Granger causality test, whereas the existence of the potential long-run relationship is examined using the Johansen cointegration test. In addition, in order to determine the magnitude of the mutual relationship, variance decomposition is employed in both estimated models. Moreover, the stability of the models when exposed to external shocks is observed through their impulse response functions. Findings. Conducted analysis shows the negative long-term impact of the central bank bills interest rates on lending and real GDP in North Macedonia. However, no statistically significant impact in this regard is found in the short run. Opposingly, the inflation rate negatively affects lending and real GDP in North Macedonia in the short run, whereas, in the long run, it does not have a statistically significant impact. Originality / Value / Practical implications. Unlike many other studies in this area, this paper provides practical guidance for the monetary authorities in countries with excess liquidity in the banking system. Namely, its findings imply that central banks should reduce the interbank rate when faced with crises that cause liquidity disparities between banks. Failure to reduce interest rates during the crisis disrupts financial stability, which causes banks to withhold investing their liquid assets in the real economy.

scholarly journals AID AND GROWTH IN BANGLADESH: A REASSESSMENT

2018 ◽  
pp. 422-440
Author(s):  
Sharif Hossain ◽  
Rajarshi Mitra ◽  
Thasinul Abedin
Keyword(s):  
Economic Growth ◽  
Foreign Aid ◽  
Inflation Rate ◽  
Government Expenditure ◽  
Real Income ◽  
Domestic Investment ◽  
Real Gdp ◽  
Long Run ◽  
Short Run ◽  
Per Capita

Although the amount of foreign aid received by Bangladesh as a share of GDP has declined over the years, Bangladesh remains one of the heavily aiddependent countries in Asia. The results of most empirical studies that have examined the effectiveness of foreign aid or other forms of development assistance for economic growth have varied considerably depending on the econometric methodology used and the period of study. As the debate and controversy over aid-effectiveness for economic growth continue to grow, this paper reinvestigates the short-run and long-run effects of foreign aid received on percapita real income of Bangladesh over the period 1972–2015. A vector error correction model is estimated. The results indicate lack of any significant short-run and long-run relation between foreign aid and per-capita real income. Results further indicate short-run unidirectional causalities from per-capita real GDP to domestic investment (in proportion to GDP), from government expenditure (in proportion to GDP) to inflation rate, from inflation rate to domestic investment (in proportion to GDP), and from domestic investment to foreign aid (as percentages of GDP). Short-run bidirectional causality is observed between per-capita electricity consumption and per-capita real GDP, and between per-capita real GDP and government expenditure (in proportion to GDP).

An Analysis of the Effectiveness of Interest Rates to Facilitate Price Stability and Economic Growth in South Africa

2018 ◽  
Vol 63 (3) ◽  
pp. 68-90
Author(s):  
Danie Francois Meyer ◽  
Chama Chipeta ◽  
Richard Thabang Mc Camel
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Interest Rates ◽  
South African ◽  
Inflation Rate ◽  
Price Stability ◽  
Long Run ◽  
Integration Test ◽  
Short Run ◽  
Repo Rate

Abstract Price stability supports accelerated economic growth (GDP), thus the main objective of most central banks is to ensure price stability. The South African economy is experiencing a unique monetary policy dilemma, where a high inflation rate is accompanied by high interest rates and low GDP. This is an unconventional monetary policy scenario and may hold strenuous repercussions for the South African economy. This dilemma was held as the rationale behind this study. The study investigated the effectiveness of the use of the repo rate as an instrument to facilitate price stability and GDP in South Africa. Long-run, short-run and casual relationships between interest rates, inflation and GDP were therefore analyzed. The methodology is based on an econometric process which included a Johansen co-integration test, with a Vector Error Correction model (VECM). Casual relationships were also tested using Granger causality tests. Results of the Johansen Co-integration test indicated the presence of co-integrating long-run relationships between the variables and a significant and negative long-run relationship between the repo rate and inflation rate was revealed, whereas GDP and inflation rate exhibited a significant and positive long-run relationship. The study also found short-run relationships between inflation and GDP, but not for inflation and the repo rate. Further areas of potential research may fixate towards the assessment of other significant alternative policy tools which may be utilized by various countries’ monetary policy authorities to influence supply specific inflationary pressures led by the cost-push phenomena, especially in the short-run.

scholarly journals The Effect of Interest Rate on The Volume of Cash and Pledge Credit in Iraq (2004-2016)

2021 ◽  
pp. 60-70
Author(s):  
هيثم الجنابي ◽  
نجوى كاظم
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Inflation Rate ◽  
Banking System ◽  
Standard Analysis ◽  
Cubic Model ◽  
Independent Variable ◽  
Oil Revenues

The interest price is one of the important tools of monetary policy to affect the financial and economic variables, including cash and pledge credit, with the aim of activating the economic movement in the country. The Central Bank followed a policy of reducing the base interest price until it reached 4.33% in 2016, but this decrease didn't lead to the energizing of cash and pledging credit in a way that leads to the productive sector's advancement, as the Iraqi economy is a rentier economy and oil revenues have acquired a large proportion of the domestic income of Iraq. Also, individuals hoarding their money away from the banking system have made the interest price lose its role in influencing at the credit extant. The research aims to measure the effect of basic interest price changes on the extant of cash and credit through descriptive and standard analysis for the period (2004-2016). The research is based on the hypothesis that weakness of the correlation and significant impact between interest prices and the extant of cash and pledge credit led to weakness the credit of both types in stimulating investment. The research reached a set of conclusions, the most important of which is the existence of a weak relationship and there is no statistically significant effect of the independent variable (interest price) on the dependent variable (cash and pledge credit) and there is an inverse relationship between them, which is consistent with economic theory. The research concluded with a set of recommendations, the most important of which is the activation of the interest price role as one of the monetary policy tools to influence cash and pledge credit, and commercial banks must coordinate and cooperate with the Central Bank of Iraq to study and determine the interest price and review interest rates periodically and continuously. Keywords : Interest rate, cash credit, pledge credit, cash interest rate, real interest rate, inflation rate, linear model and cubic model

Electricity consumption and economic growth in ASEAN

2017 ◽  
Vol 5 (2) ◽  
pp. 16
Author(s):  
Ahmad Ghazali Ismail ◽  
Arlinah Abd Rashid ◽  
Azlina Hanif
Keyword(s):  
Economic Growth ◽  
Energy Use ◽  
Electricity Consumption ◽  
Panel Estimation ◽  
Real Gdp ◽  
Long Run ◽  
Bidirectional Relationship ◽  
Short Run ◽  
Using Data ◽  
The Relationship

The relationship and causality direction between electricity consumption and economic growth is an important issue in the fields of energy economics and policies towards energy use. Extensive literatures has discussed the issue, but the array of findings provides anything but consensus on either the existence of relations or direction of causality between the variables. This study extends research in this area by studying the long-run and causal relations between economic growth, electricity consumption, labour and capital based on the neo-classical one sector aggregate production technology mode using data of electricity consumption and real GDP for ASEAN from the year 1983 to 2012. The analysis is conducted using advanced panel estimation approaches and found no causality in the short run while in the long-run, the results indicate that there are bidirectional relationship among variables. This study provides supplementary evidences of relationship between electricity consumption and economic growth in ASEAN.

scholarly journals Mobile Money Use: The Impact of Macroeconomic Policy and Regulation

Economies ◽  
2021 ◽  
Vol 9 (2) ◽  
pp. 51
Author(s):  
Lorna Katusiime
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Financial Innovation ◽  
Macroeconomic Policy ◽  
Mobile Money ◽  
Distributed Lag ◽  
Distributed Lag Model ◽  
Long Run ◽  
Short Run ◽  
The Impact

This paper examines the effects of macroeconomic policy and regulatory environment on mobile money usage. Specifically, we develop an autoregressive distributed lag model to investigate the effect of key macroeconomic variables and mobile money tax on mobile money usage in Uganda. Using monthly data spanning the period March 2009 to September 2020, we find that in the short run, mobile money usage is positively affected by inflation while financial innovation, exchange rate, interest rates and mobile money tax negatively affect mobile money usage in Uganda. In the long run, mobile money usage is positively affected by economic activity, inflation and the COVID-19 pandemic crisis while mobile money customer balances, interest rate, exchange rate, financial innovation and mobile money tax negatively affect mobile money usage.

Determinants of Treasury-LIBOR Swap Spreads

2005 ◽  
Vol 08 (04) ◽  
pp. 687-705 ◽  
Author(s):  
D. K. Malhotra ◽  
Vivek Bhargava ◽  
Mukesh Chaudhry
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Default Risk ◽  
Yield Curve ◽  
Short Term ◽  
Long Run ◽  
Interest Rate Volatility ◽  
Short Run ◽  
Using Data ◽  
Swap Spreads

Using data from the Treasury versus London Interbank Offer Swap Rates (LIBOR) for October 1987 to June 1998, this paper examines the determinants of swap spreads in the Treasury-LIBOR interest rate swap market. This study hypothesizes Treasury-LIBOR swap spreads as a function of the Treasury rate of comparable maturity, the slope of the yield curve, the volatility of short-term interest rates, a proxy for default risk, and liquidity in the swap market. The study finds that, in the long-run, swap spreads are negatively related to the yield curve slope and liquidity in the swap market. We also find that swap spreads are positively related to the short-term interest rate volatility. In the short-run, swap market's response to higher default risk seems to be higher spread between the bid and offer rates.

scholarly journals TREASURY BILLS AND/OR CENTRAL BANK BILLS FOR ABSORBING SURPLUS LIQUIDITY: THE MAIN CONSIDERATIONS

2013 ◽  
Vol 04 (02) ◽  
pp. 1350011
Author(s):  
OBERT NYAWATA
Keyword(s):  
Central Bank ◽  
Banking System ◽  
Central Banks ◽  
Market Development ◽  
Practical Reasons ◽  
Treasury Bills ◽  
Positive Externalities ◽  
Excess Liquidity ◽  
Challenging Question ◽  
Transmission Of Monetary Policy

This paper discusses the challenging question of whether central banks should use Treasury bills or central bank bills for draining excess liquidity in the banking system. While recognizing that there are practical reasons for using central bank bills, the paper argues that Treasury bills are the first best option especially because of the positive externalities for the financial sector and the rest of the economy. However, the main considerations in the choice should be: (i) operational independence for the central bank; (ii) market development; and (iii) the strengthening of the transmission of monetary policy impulses.

scholarly journals Dynamic Analysis of Structural Shifts of Fiscal Revenue in Nigeria, 1999-2016

2016 ◽  
Vol 8 (11) ◽  
pp. 96
Author(s):  
Mustapha A. Akinkunmi
Keyword(s):  
Data Availability ◽  
Government Revenue ◽  
Excise Duty ◽  
Tax Revenues ◽  
Real Gdp ◽  
Crude Oil Prices ◽  
Long Run ◽  
Short Run ◽  
Oil Sector ◽  
The Government

The oil sector that eased the financial constraint of Nigerian government in the 1970s is presently acting as the source of financial constraints to the country due to a continuous decline in government revenue, arising from the recent drastic fall in world crude oil prices. This calls for the government to diversify its revenue base through improving taxation. This study examined the influence of economic performance on the government revenue as well as the various sources of tax revenues in Nigeria. Monthly data spanning 1999 to 2016 were utilized to estimate vector error correction models (VECM) for five sources of government tax revenues based on data availability. Empirical results revealed that there is a significant relationship between real GDP and real company income tax revenues, and between real GDP and real excise duty revenues in the long run. However, in the short run, the one-year lag of tax revenue varieties poses a significant influence on the various sources of tax revenues.

scholarly journals Persistent Liquidity Effects and Long-Run Money Demand

2014 ◽  
Vol 6 (2) ◽  
pp. 71-107 ◽  
Author(s):  
Fernando Alvarez ◽  
Francesco Lippi
Keyword(s):  
Interest Rates ◽  
Money Demand ◽  
Asset Markets ◽  
Propagation Mechanism ◽  
Monetary Model ◽  
Long Run ◽  
Short Run ◽  
The Stability ◽  
Two Parameters

We present a monetary model with segmented asset markets that implies a persistent fall in interest rates after a once-and-for-all increase in liquidity. The gradual propagation mechanism produced by our model is novel in the literature. We provide an analytical characterization of this mechanism, showing that the magnitude of the liquidity effect on impact, and its persistence, depend on the ratio of two parameters: the long-run interest rate elasticity of money demand and the intertemporal substitution elasticity. The model simultaneously explains the short-run “instability” of money demand estimates as well as the stability of long-run interest-elastic money demand. (JEL E13, E31, E41, E43, E52, E62)

scholarly journals Impact of Exchange Rate Management on the Nigerian Economic Growth: Empirical Validation

2019 ◽  
Vol 1 (2) ◽  
pp. 28-35
Author(s):  
Friday Osaru Ovenseri Ogbomo ◽  
Precious Imuwahen Ajoonu
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Inflation Rate ◽  
Government Expenditure ◽  
Least Square ◽  
Ordinary Least Square ◽  
Exchange Rate Management ◽  
Long Run ◽  
Short Run ◽  
The Impact

This paper examined the impact of Exchange Rate Management on economic growth in Nigeria between 1980 and 2015. The study was set to gauge how the management of exchange rate in Nigeria has impacted the economy. The study employed the Ordinary Least Square (OLS) method in its analysis. Co-integration and Error Correction Techniques were used to establish the Short-run and Long-run relationships between economic growth and other relevant economic indicators. The result revealed that exchange rate management proxy by various exchange rates regimes in Nigeria was not germane to economic growth. Rather, government expenditure, inflation rate, money supply and foreign direct investment significantly impact on economic growth in Nigeria. It is against this backdrop that the Nigerian economy must diversify her export base to create room for more inflow of foreign exchange.  

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