scholarly journals On the Predictive Power of the Malaysian T Bills Term Spread in Predicting Real Economic Activity

2020 ◽  
Author(s):  
Noor Azlan Ghazali ◽  
Soo Wah Low
Keyword(s):  
Interest Rates ◽  
Economic Activity ◽  
Equation System ◽  
Output Growth ◽  
Economic Cycle ◽  
Term Spread ◽  
Long Run ◽  
The Difference ◽  
Near Term

The ability of financial market interest rates to predict real economic activity has gained considerable attention of economics and financial researchers. In this regard, the term spread, i.e. the difference between long term and short term yield is argued to be an effective indicator to predict economic cycle. We investigate this proposition for the Malaysian economy using the T bills discount rates. Our results of both, single and multi-equation system of vector autoregression (VAR), support the case for Malaysia. Current T bills spread is shown to be a significant indicator for annual output growth for up to six months ahead. We also show that information conveyed by the term spread is unique and not of those implied by the monetary policy. Our results also indicate that, the power of term spread is limited for the near term prediction and over the long run money dominates spread in predicting output.  

The Evolution and Importance of Public Credit

2011 ◽  
Author(s):  
David Stasavage
Keyword(s):  
Interest Rates ◽  
Early Modern Europe ◽  
Access To Credit ◽  
Public Credit ◽  
The Difference ◽  
City States ◽  
The Cost ◽  
Territorial States ◽  
New Evidence

This chapter examines why access to credit was important for European states and provides extensive new evidence on the evolution of public credit across five centuries, from 1250 to 1750. The ability to borrow was critical in medieval and early modern Europe because it allowed states to participate in wars, either defensive or offensive. In order to better understand this fact, the chapter analyzes the movement that took place from compulsory to paid service for soldiers, along with opportunities to finance wars through current taxation. It also explains when states first borrowed long-term and measures the cost of borrowing, focusing on interest rates based on nominal rates at issue when these are available, and based on the fiscal proxy when they are not. The chapter highlights the difference between city-states and territorial states, with the former enjoying an apparent financial advantage that allowed them to begin borrowing earlier and to obtain access to lower-cost finance.

Growth and returns across countries

2021 ◽  
pp. 78-87
Author(s):  
Jesper Rangvid
Keyword(s):  
Economic Growth ◽  
Interest Rates ◽  
Stock Returns ◽  
Stock Prices ◽  
Economic Activity ◽  
Wide Margin ◽  
The Past ◽  
Long Run ◽  
The Us ◽  
Long Run Risk

This chapter examines the relation between long-run economic growth and returns across countries. Have countries that have experienced high GDP growth historically also experienced high stock returns? The chapter contains three main messages. First, there is no clear tendency that countries that have grown fast in the past are also countries that have delivered high stock returns in the past. Second, as in the US, stock prices have in many countries followed economic activity in the long run. Third, real interest rates relate to economic growth across countries in the long run.Another conclusion emerging from this chapter is that long-run stock returns exceed long-run rates of economic growth and long-run risk-free rates by a wide margin.

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.

Term spread regressions of the rational expectations hypothesis of the term structure allowing for risk premium effects

2015 ◽  
Vol 19 (1) ◽  
Author(s):  
Efthymios Argyropoulos ◽  
Elias Tzavalis
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Rational Expectations ◽  
Time Varying ◽  
Structure Model ◽  
Expectations Hypothesis ◽  
Term Structure Model ◽  
Term Spread ◽  
Term Premium

AbstractThis paper suggests a new empirical methodology of testing the predictions of the term spread between long and short-term interest rates about future changes of the former allowing for term premium effects, according to the rational expectations hypothesis of the term structure. To capture the effects of a time-varying term premium on the term spread, the paper relies on an empirically attractive affine Gaussian dynamic term structure model which assumes that the term structure of interest rates is spanned by three unobserved state variables. To retrieve accurate values of these variables from interest rates series, the paper suggests a new method which can overcome the effects of measurement (or pricing) errors inherent in these series on the estimates of the model. This method is assessed by a Monte Carlo study. Ignoring these errors will lead to biased estimates of term structure models. The empirical results of the paper provide support for the suggested term structure model. They show that this model can efficiently capture the time-varying term premium effects embodied in long-term interest rates, which can explain the failures of term spread to forecast future changes in long-term rates.

scholarly journals Cyclical Fluctuation, Growth, and Stabilization: An Empirical Investigation of Dual Policy Objectives in Bangladesh

2020 ◽  
Author(s):  
Richmond Sam Quarm ◽  
Mohamed Osman Elamin Busharads
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Business Cycle ◽  
Interest Rates ◽  
Money Supply ◽  
Macroeconomic Policy ◽  
Output Growth ◽  
Long Run ◽  
Short Run ◽  
The Business Cycle

In conventional economics, two types of macroeconomic policy i.e. fiscal policy and monetary policy are used to streamline the business cycle. This paper has examined the cyclical behavior of these variables over the business cycle of Bangladesh. The objective of this examination is to show whether policies (fiscal policy and monetary policy) in Bangladesh are taken with a motive to stabilize the economy or only to promote economic growth. In other words, it has examined whether the policies in Bangladesh are procyclical or countercyclical or acyclical. Hodrick Prescott (HP) filter has been used to separate the cyclical component of considered variables. Both correlation and regression-based analysis have provided that in Bangladesh government expenditure and interest rates behave procyclically, but money supply behaves acyclically over the business cycle. Besides, this paper has tried to identify the long-term as well as the short-term relationship between real GDP and the macroeconomic policy variables with the help of the Johansen cointegration test, vector error correction model (VECM), and block exogeneity Wald test. Through these analyses, this study has found that fiscal policy has a significant impact on GDP growth both in the short-run and long-run. In the case of monetary policy, although the interest rate has an impact on real output both in the short-run and long-run, the money supply has neither a short-run nor long-run effect on output growth.

scholarly journals ANALISIS DINAMIS KETERKAITAN VARIABEL YANG MEMPENGARUHI NERACA TRANSAKSI BERJALAN INDONESIA TAHUN 2012

2020 ◽  
Vol 1 (2) ◽  
Author(s):  
Winta Ratna Sari
Keyword(s):  
Interest Rate ◽  
Current Account ◽  
Impulse Response Function ◽  
Secondary Data ◽  
Output Growth ◽  
Current Account Balance ◽  
Long Run ◽  
The Stability ◽  
The Current Account

This study was to analyze the contribution rate (the rupiah against the U.S. dollar), Libor Interest Rate, Inflation and Output Growth (GDP) of the current account balance in Indonesia. The data used in this study secondary data is sourced from Indonesia Financial Statistics. The data used is the data quarterly from the first quarter of 2000 up to 2010 fourth quarter. The results of the estimated Vector Autoregression (VAR) indicates that there is a relationship between the Current Account, Exchange Rate, Libor Interest Rate, Inflation and GDP at lag t-1. Impulse response function of the stability of the first note that all variables are in the long run that is over 5 years and tend to be stable. This means that in the short term variables that are used do not provide a meaningful contribution in the long term but will mutually contribute to each other. Variance Decomposition Based on these results, it is known that all variables contributed to the Current Account, but his greatest contribution is of the variable itself, this means that the current account tends to a variable receiving contributions rather than giving contributions

scholarly journals Modeling The Relationships Between Export, Import, Inflation, Interest Rate, and Rupiah Exchange

2020 ◽  
Vol 3 (3) ◽  
pp. 247-262
Author(s):  
Nina Valentika ◽  
Vivi Iswanti Nursyirwan ◽  
Ilmadi Ilmadi
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Granger Causality ◽  
Granger Causality Test ◽  
Short Term ◽  
Variable Model ◽  
Causality Test ◽  
Significance Level ◽  
Long Run

This research was a modification of research by Catalbas (2016) and Pratikto (2012). The model that can separate long-term and short-term components are the Vector Error Correction Model (VECM). This study aimed to model export, import, inflation, interest rates, and the rupiah exchange rate using VECM and to test the causality between variables using the Granger Causality test. The inter-variable model obtained in this study was VECM with lag 2 using a deterministic trend with the assumption of none intercept no trend and two cointegrations. In export and import, there was an adjustment mechanism from the short-term to the long-term. This research model was appropriate to forecast the export and import where VECM with export and import as the target variables, the cointegration equation (long-run model) for  cointegration equation (long-run model) for Based on the Granger Causality test, it was found that there was a one-way relationship between exchange rates and inflation, export and interest rates, export and import, inflation and export, and import and the interest rate at the significance level of 5%.

scholarly journals Guaranteed Annuity Options

2003 ◽  
Vol 33 (02) ◽  
pp. 125-152 ◽  
Author(s):  
Phelim Boyle ◽  
Mary Hardy
Keyword(s):  
Interest Rates ◽  
Insurance Companies ◽  
Retirement Savings ◽  
Fixed Rate ◽  
Life Annuity ◽  
Stock Market Performance ◽  
New Business ◽  
The Difference ◽  
The Cost

Under a guaranteed annuity option, an insurer guarantees to convert a policyholder's accumulated funds to a life annuity at a fixed rate when the policy matures. If the annuity rates provided under the guarantee are more beneficial to the policyholder than the prevailing rates in the market the insurer has to make up the difference. Such guarantees are common in many US tax sheltered insurance products. These guarantees were popular in UK retirement savings contracts issued in the 1970's and 1980's when long-term interest rates were high. At that time, the options were very far out of the money and insurance companies apparently assumed that interest rates would remain high and thus that the guarantees would never become active. In the 1990's, as long-term interest rates began to fall, the value of these guarantees rose. Because of the way the guarantee was written, two other factors influenced the cost of these guarantees. First, strong stock market performance meant that the amounts to which the guarantee applied increased significantly. Second, the mortality assumption implicit in the guarantee did not anticipate the improvement in mortality which actually occurred. The emerging liabilities under these guarantees threatened the solvency of some companies and led to the closure of Equitable Life (UK) to new business. In this paper we explore the pricing and risk management of these guarantees.

Design Methodologies for High Temperature Reactor Structural Components Cladded With Noncompliant Materials

2019 ◽  
Author(s):  
B. Barua ◽  
V.-T. Phan ◽  
M. C. Messner ◽  
B. Jetter ◽  
T.-L. Sham ◽  
...  
Keyword(s):  
High Temperature ◽  
Base Material ◽  
Design Rules ◽  
Corrosion Resistant ◽  
Class A ◽  
Creep Fatigue ◽  
The Difference ◽  
Near Term ◽  
Term Creep

Abstract The existing Class A metallic materials qualified for ASME Section III, Division 5 rules for high temperature nuclear reactors, are not optimized for corrosion resistance when exposed to corrosive reactor coolants such as molten salts, and molten lead and lead-bismuth eutectic. Introducing new corrosion-resistant materials into the Code would be a lengthy and expensive process for long design lifetimes, requiring long-term creep test data. A near-term alternative solution might be to allow designers to clad the existing Class A materials with thin layer of some corrosion-resistant material. However, the current ASME Section III, Division 5 rules provide no guidance on evaluating cladded components against the Code creep-fatigue or strain limits requirements. This necessitates the development of design rules for cladded components that do not require long-term testing of clad materials. Depending on the difference in mechanical properties, the influence of clad on the long term response of the structural system can be significant or negligible. This work focuses on developing design rules for cladded components with a clad material that does not accumulate significant inelastic deformation compared to the base material. This work proposes to treat such clad materials as linear elastic. Sample calculations including finite element analyses of a representative molten salt reactor heat exchanger tube without and with clad were performed to verify the proposed approach. Finally, a complete set of design rules for components with noncompliant clad material is proposed.

Foreign official holdings of US treasuries, stock effect and the economy: a DSGE approach

2018 ◽  
Vol 20 (1) ◽  
Author(s):  
John Nana Francois
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Demand Curve ◽  
Feedback Mechanism ◽  
Empirical Literature ◽  
Term Spread ◽  
Short And Long Term ◽  
Stock Effect

Abstract This paper examines the effects of shocks to foreign official holdings of long-term U.S. Treasuries (FOHL) on macroeconomic aggregates using a dynamic general equilibrium model. The model treats short- and long-term bonds as imperfect substitutes through endogenous portfolio adjustment frictions. This provides a channel for changes in relative supply of assests to influence asset prices. Three key findings emerge: (1) positive shocks to FOHL impact the long-term interest rate and the term spread negatively through a stock effect channel – defined as persistent changes in interest rates as a result of movement along the Treasury demand curve. This result is consistent with findings in the empirical literature. (2) Through a feedback mechanism from an endogenous term structure in the model, the decline in the long-term interest rate induces an expansion in economic activity which leads to an increase in consumption, output and inflation. Both the stock effect and the feedback mechanism are generated by the portfolio frictions. (3) Higher degrees of persistence of FOHL shocks or imperfect asset substitution generate a prolonged negative stock effect following shocks to FOHL. This causes a longer delay of the term spread to return to its steady state after it falls; hence, inducing an extended and stronger stimulative feedback effect from the endogenous term structure into the modeled economy.  These findings help explain macroeconomic events such as the so-called ``Greenspan conundrum'' of the mid 2000s.

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