scholarly journals Assessing the Role of Money versus Interest Rate in Pakistan

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

scholarly journals The price puzzle and the role of South African monetary policy in Botswana and Namibia

2012 ◽  
Vol 5 (1) ◽  
pp. 193-214
Author(s):  
Philippe Burger ◽  
Helvi Fillipus ◽  
Innocent Molalapata
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
South African ◽  
Reaction Functions ◽  
Transmission Mechanisms ◽  
Price Puzzle ◽  
The Interest Rate ◽  
Monetary Transmission Mechanisms ◽  
Interest Rate Shock

Using SVAR analysis, this paper finds what Sims calls a ‘price puzzle’, i.e. a case where CPI increases after a positive interest rate shock. The SVAR analysis controls for various monetary transmission mechanisms, including one based on the South African dominance hypothesis that links South African monetary policy to inflation in Botswana and Namibia. The paper follows Castelnuovo and Surico and interprets the price puzzle as a symptom of an indeterminate monetary policy. Subsequently the paper explores the finding of indeterminate monetary policy further by using an unstructured VAR to estimate the monetary reaction functions of Botswana and Namibia. These results also point to the presence of an indeterminate monetary policy. Lastly, both the SVAR and the unstructured VAR estimated for the monetary reaction function indicate the importance of the exchange rate, and not the interest rate, as a determinant of inflation in both Botswana and Namibia

Examining the Asymmetric Impact of Monetary Policy in India

2017 ◽  
Vol 11 (3) ◽  
pp. 290-314 ◽  
Author(s):  
Jeevan Kumar Khundrakpam
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Negative Impact ◽  
Aggregate Demand ◽  
Jel Classification ◽  
Government Consumption ◽  
Policy Shocks ◽  
Significant Negative Impact ◽  
The Interest Rate ◽  
The Impact

Though an accumulating body of work has analysed monetary policy transmission in India, there are few studies examining the asymmetric aspect of the transmission. Against this backdrop, segregating the interest rate setting process captured by a Taylor rule type into unanticipated and anticipated components, this article analyses the asymmetric effects of monetary policy on aggregate demand and its components, and inflation in India using quarterly data from 1996–97Q1 to 2013–14Q3. It finds that unanticipated hikes and cuts in the policy rate have a symmetric impact on aggregate demand, but differentially impact the components. While the impacts on investment are negative and symmetric, they are asymmetric on private consumption, with only an unanticipated cut in policy rate having a significant negative impact. Government consumption is unaffected by monetary policy shocks. The impact of unanticipated interest rate changes on inflation is negative and symmetric. Anticipated policy rate changes also have a negative impact on aggregate demand and its components, except for government consumption, but between certain levels, such changes are ineffective, indicating a neutral impact. Anticipated policy rate changes have a negative impact on inflation at all levels. JEL Classification: C32, C51, E31, E52

Inflation Dynamics, Globalization and Monetary Policy: Empirical Evidence from Selected South and Southeast Asian Countries

2020 ◽  
Vol 16 ◽  
Author(s):  
Arshi Shahid ◽  
◽  
Shabib Syed ◽  
Hafiz Ahmad
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Policy Instruments ◽  
Output Gap ◽  
Domestic Output ◽  
Panel Data Estimation ◽  
Dynamic Heterogeneous Panel ◽  
The Interest Rate ◽  
Nominal Anchor ◽  
The Impact

The present study investigated the impact of monetary policy and globalization on inflation. The study utilized an updated measure of globalization along with two other dimensions i.e., de facto and de jure measure of globalization to examine the nature of the globalization-inflation relationship. It measures the impact of monetary policy variables on inflation, ignoring random shocks as these are considered minor fractions for the inconsistency of the policy instruments. The study also used the Hodrick Prescott filter to calculate the domestic output gap to assess the notion that the changes in the domestic output gap are still relevant to inflation variations in the presence of globalization. Structural modeling of dynamic heterogeneous panel data estimation technique, which accounts for endogeneity and serial correlation issues has also been employed. The results of the study confirm that both global and domestic factors have significant and descriptive power for domestic inflation. Furthermore, the interest rate is found to be a major nominal anchor to affect inflation. The results of panel causality showed that there exists bidirectional causality from inflation to interest rate, while mixed results were found for analyzing monetary aggregates, exchange rate, globalization, and domestic output gap relationships.

Impacts of monetary instruments on overnight spread under the interest rate corridor framework: evidence from China

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Chiu-Lan Chang ◽  
Ming Fang ◽  
Bin Hong ◽  
Kung-Cheng Ho
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Policy Instruments ◽  
Short Term ◽  
Content Type ◽  
Interest Rate Policy ◽  
Interest Rate Liberalization ◽  
The Interest Rate ◽  
Financing Market

PurposeTo verify the effectiveness of the monetary policy, the impacts of monetary instruments on overnight spread under the interest rate corridor (IRC) are examined. The People's Bank of China (PBC) has operated the IRC since 2014. To understand the impacts of monetary instruments on overnight spread before and after the IRC framework, the complete samples are divided into two periods.Design/methodology/approachTo model the overnight spread, an exponential GARCH (EGARCH) approach is used which can examine the interbank market interest rates for monetary policy purposes. The overnight money market plays an important role in the implementation of monetary policy.FindingsChinese interest rate liberalization and the implementation of IRC affect the overnight spread in the short-term financing market. Before the implementation of the IRC, the key factor to affect the overnight spread is mainly affected by the PBC's monetary policy control on the liquidity supply side. After the implementation of IRC, the overnight spread can be the largest part explained by the liquidity demand side and the PBC's multiple monetary instruments have significant impacts on the reduction of overnight spread.Originality/valueThe overnight spread has recently been influenced by various factors that are directly or closely related to the monetary policy instruments and the interest rate policy of the PBC. Chinese interest rate liberalization and the implementation of interest rate corridor policy affect the overnight spread in the short-term financing market.

scholarly journals On the Limits of Macroprudential Policy

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Marcin Kolasa
Keyword(s):  
Monetary Policy ◽  
Policy Instruments ◽  
New Keynesian ◽  
Output Volatility ◽  
Macroprudential Policy ◽  
Collateral Constraints ◽  
Keynesian Model ◽  
Additional Stabilization ◽  
The Interest Rate

AbstractThis paper studies how macroprudential policy tools applied to the housing market can complement the interest rate-based monetary policy in achieving one additional stabilization objective, defined as keeping either economic activity or credit at some exogenous (and possibly time-varying) levels. We show analytically in a canonical New Keynesian model with housing and collateral constraints that using the loan-to-value (LTV) ratio, tax on credit or tax on property as additional policy instruments does not resolve the inflation-output volatility tradeoff. Perfect targeting of inflation and credit with monetary and macroprudential policy is possible only if the role of housing debt in the economy is sufficiently small. The identified limits to the considered policies are related to their predominantly intertemporal impact on decisions made by financially constrained agents, making them poor complements to monetary policy, which also operates at an intertemporal margin. These limits can be overcome if macroprudential policy is instead designed such that it sufficiently redistributes income between savers and borrowers.

scholarly journals The impact of Musharakah financing on the monetary policy in the Islamic economy

2018 ◽  
Vol 3 (3/4) ◽  
pp. 139-152
Author(s):  
Hatem Adela
Keyword(s):  
Economic Theory ◽  
Monetary Policy ◽  
Interest Rate ◽  
Economic Activity ◽  
Methodological Framework ◽  
Mathematical Methods ◽  
Content Type ◽  
Return Rates ◽  
The Interest Rate ◽  
The Impact

Purpose This paper aims to contribute to formulating the methodological framework for a paradigm of Islamic economics, using the development of the conventional economics, theoretical and mathematical methods. Design/methodology/approach The study based on the inductive and mathematical methods to contribute to economic theory within the methodological framework for Islamic Economics, by using the return rate of Musharakah rather than the interest rate in influence the economic activity and monetary policy. Findings Via replacement, the concept of the interest rate by the return rates of Musharakah. It concludes that the central bank can control the monetary policy, economic activity and the efficient allocation of resources by using the return rates of Musharakah through the framework of Islamic economy. Practical/implications The study is a contribution to formulate the methodological framework for a paradigm of Islamic economics, where it investigates the impact of return rates of Musharakah on the money market and monetary policy, by the mathematical methods used in the conventional economy. Also, the study illustrates the importance of further studies that examine the methodological framework for Islamic Economics. Originality/value The study aims to contribute to formulating the Islamic economic theory, through the return rate of Musharakah financing instead of the interest rate, and its effectiveness of the monetary policy. As well as reformulating the concepts of the investment function, the present value and the marginal efficiency rate of investment according to the Islamic economy approach.

scholarly journals Does the Interest Rate Form Business Cycle?

2019 ◽  
Vol 4 (1) ◽  
pp. 29-34
Author(s):  
Bijan Bidabad ◽  
Abul Hassan
Keyword(s):  
Interest Rate ◽  
Business Cycle ◽  
Interest Rates ◽  
Banking System ◽  
Real Economy ◽  
Short Term ◽  
The Usa ◽  
Rate Form ◽  
The Interest Rate

Dynamic structural behavior of depositor, bank and borrower and the role of banks in forming business cycle are investigated. We test the hypothesis that does banks behavior make oscillations in the economy through the interest rate. By dichotomizing banking activities into two markets of deposit and loan, we show that these two markets have non-synchronized structures, and this is why the money sector fluctuation starts. As a result, the fluctuation is transmitted to the real economy through saving and investment functions. Empirical results assert that in the USA, the banking system creates fluctuations in the money sector and real economy as well through short-term interest rates

scholarly journals THE ROLE OF THE CENTRAL BANK IN THE FUNCTION OF IMPROVEMENT OF LIQUIDITY OF BANKING SECTOR IN BOSNIA AND HERZEGOVINA

2019 ◽  
Vol 12 (24) ◽  
Author(s):  
Goran Mitrović ◽  
Živko Erceg
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Bosnia And Herzegovina ◽  
Banking Sector ◽  
Banking System ◽  
Policy Instruments ◽  
Foreign Banks ◽  
Dayton Agreement ◽  
The Impact

The monetary policy of Bosnia andHerzegovina is rather limited because it is basedon the principles of a currency boardcharacterized by the impossibility of implementingthe basic monetary policy instruments incomparison with the monetary policy of theEuropean Union. However, the constant presenceof European integrations should point the need fora more drastic change in the monetary policy ofBosnia and Herzegovina. By entering theEuropean Monetary Union (EMU), the monetaryterritory of Bosnia and Herzegovina will becomeone of the branches of the European Central Bank(ECB). In addition, it is not difficult to concludewhy the Law about the Central Bank of Bosnia andHerzegovina has been adopted with the first lawsof the Dayton Agreement, if it is known that thelargest part of the banking system, and thereforethe financial market, is owned by foreign banks.This work will point out the significance of theCentral Bank of Bosnia and Herzegovina, as oneof the most important factors for maintaining thepermanent liquidity of the banking sector inBosnia and Herzegovina. The possibilities andlimitations of the Central Bank of Bosnia andHerzegovina will be determined, with theassumption of macroeconomic sustainability overa longer period of time. The need of reforming thebanking system in Bosnia and Herzegovina will beanalyzed through the constant implementation ofthe Basel standards with the increasingparticipation of foreign banks in the Bosnia andHerzegovina. It will be determined the impact ofthe implementation of the Basel III in the bankingindustry in Bosnia and Herzegovina and itsconsequences on the banking and economicsystem.models, on the ways of financing theelimination of adverse consequences of naturaldisasters.

scholarly journals Monetary Policy Effects on Energy Sector Bubbles

Energies ◽  
2019 ◽  
Vol 12 (3) ◽  
pp. 472
Author(s):  
Petre Caraiani ◽  
Adrian Călin
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Asset Prices ◽  
The United States ◽  
Energy Sector ◽  
Monetary Policy Shocks ◽  
Policy Shocks ◽  
The Difference ◽  
The Interest Rate ◽  
The Impact

We investigate the effects of monetary policy shocks, including unconventional policy measures, on the bubbles of the energy sector, for the case of the United States. We estimate a time-varying Bayesian VAR model that allows for quantifying the impact of monetary policy shocks on asset prices and bubbles. The energy sector is measured through the S&P Energy Index, while bubbles are measured through the difference between asset prices and the corresponding dividends for the energy sector. We find significant differences in the impact of monetary policy shocks for the aggregate economy and for the energy sector. The findings seem sensitive to the interest rate use, i.e., whether one uses the shadow interest rate or the long-term interest rate.

On the Judicial Interest Rate: Towards a Law and Economic Theory

2013 ◽  
Vol 4 (1) ◽  
pp. 34-62
Author(s):  
Hugo A Acciarri ◽  
Nuno Garoupa
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Law And Economics ◽  
Policy Instruments ◽  
Institutional Settings ◽  
Rules Of Procedure ◽  
The Interest Rate ◽  
Substantive Law ◽  
The Impact ◽  
Neutral Effect

AbstractWhile all legal systems implement a form of pre-judgment or post-judgment interest, there is a dearth of literature on substantive law and economics analysing the impact, functioning, and assessment of the judicial interest rate. Current legal scholarship typically views the interest rate as having a neutral effect on private and social costs. This paper demonstrates that the issue is theoretically far more complex and largely influential in legal policy. Due to the asymmetric opportunity costs for each party in a case, judicial interest rates may lead to improper delay of proceedings or the decoupling of damages from recovery. These potential results influence the number of settlements and suits. On this ground, we compare different institutional settings from an economic perspective and conclude that the appropriate mechanism depends on the alternative policy instruments available, namely, the rules of procedure, court fees, or mechanisms for appropriately setting damages. Further, we argue that abolishing the statute which sets pre-judgment interest may be a proposal worth considering.

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