scholarly journals Drivers of the Cash Paradox

Risks ◽  
2021 ◽  
Vol 9 (12) ◽  
pp. 227
Author(s):  
Jacek Pietrucha
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Financial Development ◽  
21St Century ◽  
Central Banks ◽  
Real Economy ◽  
Upward Trend ◽  
The Real ◽  
The Interest Rate

An upward trend in the share of cash in GDP has been observed since the beginning of the 21st century and has not yet been fully explained in the literature. In fact, the interest rate is the only variable that has been well researched and well confirmed as a determinant of the cash/GDP ratio. The novelty of this study is primarily considering new determinants of the share of cash in GDP (including in particular monetization and financial development), as well as testing the significance of uncertainty and institutions. The data cover the period 2001–2020 for 82 countries. The most important conclusions include: the share of cash in GDP is primarily dependent on its lagged values (payment habits) and the ultra-loose monetary policy of central banks. However, some other variables also contribute to this process—such as monetization and crises in the real economy.

scholarly journals Interest rates and prices causality in the Czech Republic – Granger approach

2009 ◽  
Vol 55 (No. 7) ◽  
pp. 347-356 ◽  
Author(s):  
J. Poměnková ◽  
S. Kapounek
Keyword(s):  
Monetary Policy ◽  
Czech Republic ◽  
Interest Rate ◽  
Interest Rates ◽  
Inflation Rate ◽  
Aggregate Demand ◽  
Real Economy ◽  
Investment Activity ◽  
The Czech Republic ◽  
The Interest Rate

Monetary policy analysis concerns both the assumptions of the transmission mechanism and the direction of causality between the nominal (i.e. the money) and real economy. The traditional channel of monetary policy implementation works via the interest rate changes and their impact on the investment activity and the aggregate demand. Altering the relationship between the aggregate demand and supply then impacts the general price level and hence inflation. Alternatively, the Post-Keynesians postulate money as a residual. In their approach, banks credit in response to the movements in investment activities and demand for money. In this paper, the authors use the VAR (i.e. the vector autoregressive) approach applied to the “Taylor Rule” concept to identify the mechanism and impact of the monetary policy in the small open post-transformation economy of the Czech Republic. The causality (in the Granger sense) between the interest rate and prices in the Czech Republic is then identified. The two alternative modelling approaches are tested. First, there is the standard VAR analysis with the lagged values of interest rate, inflation and economic growth as explanatory variables. This model shows one way causality (in the Granger sense) between the inflation rate and interest rate (i.e. the inflation rate is (Granger) caused by the lagged interest rate). Secondly, the lead (instead of lagged) values of the interest rate, inflation rate and real exchange rate are used. This estimate shows one way causality between the inflation rate and interest rate in the sense that interest rate is caused by the lead (i.e. the expected future) inflation rate. The assumptions based on money as a residual of the economic process were rejected in both models.

Interest Rates and Macroeconomic Investment under Uncertainty

2021 ◽  
Vol 54 (3) ◽  
pp. 319-345
Author(s):  
Ansgar Belke ◽  
Matthias Göcke
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Central Banks ◽  
Monetary Policy Transmission ◽  
Policy Transmission ◽  
Rate Effects ◽  
Exact Shape ◽  
Micro Level ◽  
The Interest Rate

The interest rate is generally considered as an important driver of macroeconomic investment characterised by a particular form of path dependency, “hysteresis”. At the same time, the interest rate channel is a central ingredient of monetary policy transmission. In this context, we shed light on the issue (which currently is a matter of concern for many central banks) whether uncertainty over future interest rates at the zero lower bound hampers monetary policy transmission. As an innovation we derive the exact shape of the “hysteretic” impact of rate changes on macroeconomic investment under different sorts of uncertainty. Starting with hysteresis effects on the micro level, we apply an adequate aggregation procedure to derive the interest rate effects on a macro level. Our results may serve as a guideline for future central banks’ policies on how to stimulate investment in times of low or even zero interest rates and uncertainty.

scholarly journals Akkumulation reloaded

2015 ◽  
Vol 45 (179) ◽  
Author(s):  
Maria Kader ◽  
Uli Schwarzer
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Low Income ◽  
Economic Activity ◽  
Central Banks ◽  
The State ◽  
Real Economy ◽  
The Real ◽  
Economic Stimulus ◽  
The Eu

Since the beginning of the financial crisis central banks are flooding the markets with money. Despite the wide use of unconventional monetary measures economic activity has not improved, esp. in the EU and signs of a worldwide recession are lurking. While the economic stimulus by monetary policy has been flawed by counteracting tendencies in the real economy (low profitability, private indebtedness) the measures taken had negative distributive consequences and might lead to an increase in inequality. Together with austerity measures by the state and its role as an insurance provider for capital anti-crisis policies have strengthened the position of wealthy income classes at the expense of low income classes.

scholarly journals Transmission Mechanism of Monetary Policy: Case Study of Interest Rate Channel in India

2018 ◽  
Vol 4 (02) ◽  
Author(s):  
Prakash Anant Salvi ◽  
Davinder Kaur Suri
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Real Economy ◽  
Policy Transmission ◽  
Pass Through ◽  
The Interest Rate ◽  
Interest Rate Channel

In India, prior to 1991, the tightly controlled interest rates caused impediments in the functioning of the interest rate channel of monetary policy transmission while after 1991, the RBI undertook various measures to strengthen the market-determination of interest rates. This paper has examined the evolution of the interest channel in India across the period 1985 to 2014 firstly by studying the interest rate pass-through using the Correlation matrix and the OLS technique and secondly, by studying the transmission of policy rates to the real economy using the reduced VAR model. The results show that the transmission of interest rates pass-through from policy rates to market interest rates (both - short-term as well as long-term) has strengthened while desired impact of long term market interest rates on industrial production and inflation appears to be weak.

Murabaha and Musharakah Moutanaquissah pricing: an interest-free approach

2020 ◽  
Vol 11 (1) ◽  
pp. 201-215 ◽  
Author(s):  
Rida Ahroum ◽  
Othmane Touri ◽  
Boujemâa Achchab
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Islamic Law ◽  
Profit Margin ◽  
Real Economy ◽  
Content Type ◽  
The Real ◽  
Reputational Risk ◽  
Valuation Methodology ◽  
The Interest Rate

Purpose This study aims to provide an interest-free valuation methodology for Murabaha and Musharakah Moutanaquissah contracts. Indeed, In Islamic finance, Murabaha contracts are widely negotiated. Their yield depends mainly on the contracted profit margin. In the current practices, this latter is based on a reference interest rate, which is highly criticized in Islamic literature, just like Musharakah Moutanaquissah contracts. In this perspective, authors suggest a new valuation methodology with parameters related to the real economy. Design/methodology/approach The authors apply an indirect method to determine a lower bound of the profit margin of a Murabaha contract. Considering Musharakah Moutanaquissah as an equivalent contract, the new valuation methodology is based on participation and focuses on parameters from the real economy: the market rent and the rate of return used for an equivalent project. Findings The results show that the pricing of Musharakah Moutanaquissah contracts could be based on several parameters linked to the real economy. Consequently, an implied value of the profit margin could be computed. Also, the interest rate is no longer implicated in the pricing of neither Murabaha nor Musharakah Moutanaquissah contracts. Research limitations/implications The valuation methodology is applicable only if the underlying asset’s financing can be made with Murabaha and Musharakah Moutanaquissah contracts. Practical implications This work will restore the link between Islamic contracts and the real economy. For Islamic banks in particular, the suggested model would reduce the exposure to reputational risk and enhance the compliance to the Sharia (Islamic Law). Originality/value Several studies have analyzed the dependence between Islamic contracts and interest rates. In general, these studies confirm this dependence and few of them have suggested alternatives. Thus, the authors contribute to the literature by providing a practical and applicable model to detach the valuation of Murabaha and Musharakah Moutanaquissah from the interest rate.

Central Banks into the Breach

2017 ◽  
Author(s):  
Pierre L. Siklos
Keyword(s):  
Monetary Policy ◽  
Global Economy ◽  
Global Financial Crisis ◽  
Central Banks ◽  
Central Banking ◽  
Real Economy ◽  
The Real ◽  
The Past ◽  
Proper Role ◽  
To Come

The book covers the global economy and the various pressures faced by central banks. It also provides some ideas for reforming existing monetary policy strategies. The events of the past fifteen years in monetary policy are essentially the story of two mistakes, one triumph, and the real possibility of another mistake to come. Prior to the global financial crisis, many central bankers were glib about the connection between finance and the real economy. This is partly because the last three decades saw many financial crises with apparently little lasting impact on the global economy. Another mistake was the failure to adequately appreciate how interconnected the world’s financial systems had become. The triumph was the recognition that price stability is a desirable objective. Whether low and stable inflation is the cause or the consequence of economic performance during the past three decades remains hotly debated, however. There is also the prospect of another financial shock to come. The outlook at the end of 2016 is clouded by at least three sets of forces. On the domestic front, central banks face a difficult and protracted exit from ultra-loose monetary policies; it is largely a problem of their own making. There is also an unwillingness to implement needed structural economic reforms that lie outside the scope of monetary policy. On the international front, there is limited appetite for cooperation and differences in views about the proper role and function of central banks. Central banking is not broken, but it is in need of repair.

scholarly journals FOREIGN EXPERIENCE OF REFINANCING OF COMMERCIAL BANKS

2021 ◽  
Author(s):  
Viktoriia Yankovska ◽  
Olga Telepneva ◽  
Nadiia Spivakova
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Commercial Banks ◽  
Central Banks ◽  
Business Activity ◽  
Foreign Experience ◽  
National Bank ◽  
The Interest Rate

The article presents a morphological assessment of the concept of "refinancing of commercial banks" based on the legal framework and definitions of well-known world and Ukrainian scientists and economists. There given a definition of the concept of "refinancing" which means that refinancing is a comprehensive system of monetary policy implementation that is conducted in favor of commercial banks for the recovery of bank resources through such instruments as credit auction, bills of exchange, securities collateral. The refinancing policy of the central banks is different in each country but there are some exceptions to its management. The central bank with a change in the interest rate can influence the rates on commercial banks loans, the level of inflation in the country and the exchange rate of the national currency that is to implement monetary policy. Lowering of interest rates entails increased business activity and rising inflation while rising interest rates have seen a decline in business activity, falling inflation and strengthening the national currency. National banks regulate the domestic exchange rate at the interest rate and the economy as a whole. The formation of the refinancing rate by the National Bank of Ukraine requires constant monitoring that is given the economic situation of the state. Foreign experience in forming the refinancing rate and using a successful mechanism is an important element in building an effective banking system. The foreign experience of the refinancing rate formation by the central banks of the world was monitored. Particular attention is paid to the analysis of the dynamics of the refinancing rate of countries such as Japan, the United States, Australia, Great Britain and China. The main priorities that the central bank should be guided by when setting the refinancing rate have been identified. Changes in the discount rate of the National Bank of Ukraine for the last seven years and the factors influencing the decision to change the interest rate are analyzed. The priority tasks to be set by the Government of Ukraine is to stabilize the financial condition of the country have been identified. Ways to improve the mechanism of refinancing of commercial banks in the economic conditions of Ukraine are outlined.

scholarly journals QUANTITATIVE EASING AS THE MAIN INSTRUMENT OF UNCONVENTIONAL MONETARY POLICY

2020 ◽  
Vol 1 (1) ◽  
pp. 39-45
Author(s):  
Halyna Alekseievska ◽  
Anzor Mumladze
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Balance Sheet ◽  
Developed Countries ◽  
Central Banks ◽  
Clear Understanding ◽  
Quantitative Easing ◽  
Real Economy ◽  
Unconventional Monetary Policy ◽  
The Real

After the fall of Lehman Brothers in September 2008, the financial crisis turned into a global crisis and had a negative impact on the real economy. During the crisis, there has been a significant decrease in key macroeconomic indicators, such as GDP, short-term interest rates, unemployment and inflation. The GDP growth rate had taken a negative value in developed countries. Inflation was below 1 percent, and deflation was observed in Japan, which in turn slowed down economic development. Central banks responded to the crisis with a change in interest rates, but this was not enough to calm financial markets and improve the real economy. Most central banks have developed many new monetary policy tools, including communication strategies, credit policies, and large asset purchases. These new measures are often called “unconventional” monetary policies. The purpose of the article is to study quantitative easing as one of the unconventional measures of monetary policy. Methodology. The article uses general scientific and special methods: generalization, systematization, economic and statistical analysis, graphic and comparison methods. This allowed us to study the theoretical foundations of the quantitative easing policy, determine the economic background for these measures application, analyze the development stages and the basic rules of functioning policy. The quantitative easing policies usage was also examined on the examples of the Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan. Results. The main trends and economic conditions, under which these methods can be used in future, were identified using an analysis of the quantitative easing application background. The policy’s main components analysis provides a clear understanding of the quantitative easing essence. As a result of the unconventional monetary policy usage, there has been a significant expansion of the USA, Japan and the Eurozone central banks' balances, which amounts to more than 10 trillion USD. Due to this process, central banks have become key bondholders. Practical meaning. The given results analysis will determine that kind of unconventional monetary policy effectiveness and the possible consequences of a significant increase in the central banks’ balance sheet assets. Value/originality. In the article, the conditions, under which unconventional monetary policy has been applied, are systematized and the four central banks’ quantitative easing policy is compared.

Global Financial Crisis and Its Impact on Russia

2009 ◽  
pp. 9-27 ◽  
Author(s):  
A. Kudrin
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Financial Crisis ◽  
Central Bank ◽  
Global Financial Crisis ◽  
Developed Countries ◽  
Real Economy ◽  
Energy Prices ◽  
Russian Government ◽  
The Real

The article examines the causes of origin and manifestation of the current global financial crisis and the policies adopted in developed countries in 2007—2008 to deal with it. It considers the effects of the financial crisis on Russia’s economy and monetary policy of the Central Bank in the current conditions as well as the main guidelines for the fiscal policy under different energy prices. The measures for fighting the crisis that the Russian government and the Central Bank use to support the real economy are described.

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