Positive Interest Rate, Stationary Economy, and Inefficiency

2020 ◽  
pp. 1-17
Author(s):  
Amir Kia
Keyword(s):  
Interest Rate ◽  
Transition Period ◽  
Pareto Efficiency ◽  
Rate Of Return ◽  
Price Ratio ◽  
Marginal Rate ◽  
Positive Rate ◽  
Short Run ◽  
Pareto Efficient ◽  
The Interest Rate

This chapter analyses the direct impact of a positive rate of interest (usury) on the production possibility curve. Usury under a stationary state creates inefficiency in the sense that the marginal rate of transformation is not equal to the price ratio. Over the short run Pareto efficiency appears when a transition period is considered and the rate of return moving from one state to another is endogenous and equals the rate of investment. In a non-stationary economy, when a positive rate of return (interest) is equal to the growth rate of the economy, there will be a Pareto-efficient equilibrium. But if the interest rate is exogenous to the system, usury exists, and then Pareto efficiency cannot be achieved under any state, either stationary or non-stationary.

The Role of Different Channels in Transmitting Monetary Policy into Output and Price in Vietnam

2015 ◽  
pp. 20-40
Author(s):  
Vinh Nguyen Thi Thuy
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Monetary Transmission ◽  
Impulse Response Functions ◽  
Short Run ◽  
The Exchange Rate ◽  
The Interest Rate ◽  
Interest Rate Channel

The paper investigates the mechanism of monetary transmission in Vietnam through different channels - namely the interest rate channel, the exchange rate channel, the asset channel and the credit channel for the period January 1995 - October 2009. This study applies VAR analysis to evaluate the monetary transmission mechanisms to output and price level. To compare the relative importance of different channels for transmitting monetary policy, the paper estimates the impulse response functions and variance decompositions of variables. The empirical results show that the changes in money supply have a significant impact on output rather than price in the short run. The impacts of money supply on price and output are stronger through the exchange rate and credit channels, but however, are weaker through the interest rate channel. The impacts of monetary policy on output and inflation may be erroneous through the equity price channel because of the lack of an established and well-functioning stock market.

scholarly journals INFLASI DARI SUDUT PANDANG MONETER DAN FISKAL (STUDI KASUS SUMATERA BARAT)

2019 ◽  
Vol 1 (1) ◽  
pp. 131
Author(s):  
Zul Azhar ◽  
Alpon Satrianto ◽  
Nofitasari Nofitasari
Keyword(s):  
Interest Rate ◽  
Money Supply ◽  
Government Spending ◽  
Descriptive Research ◽  
Distributed Lag ◽  
Long Run ◽  
Negative Effect ◽  
Short Run ◽  
The Interest Rate ◽  
Positive Effect

This study aims to analyze the effect of money supply M2, interest rate, government spending and local tax on the inflation in West Sumatera. This type of research is descriptive research and secondary datain the form of time-series from quartely 1 2007 to 2017 quartely 4 using the method of Autoregresive Distributed Lag analysis. The results of this study indicate that money supply in the long run have a significant and positive effect on inflation West Sumatera. In the short run  and long run the interest rate has a significant and positive effect on inflation in West Sumatera. Government spending in the Long run has a significant and negative effect on inflation in West Sumatera. Based on the result of this study can be concluded that there is inflation in West Sumatera is monetery of phenomenon in the long run. 

scholarly journals The Interest Rate, Learning, and Inventory Investment

2004 ◽  
Vol 94 (5) ◽  
pp. 1303-1327 ◽  
Author(s):  
Louis J Maccini ◽  
Bartholomew J Moore ◽  
Huntley Schaller
Keyword(s):  
Interest Rate ◽  
Regime Switching ◽  
Real Interest Rate ◽  
Decision Rules ◽  
Negative Relationship ◽  
The Real ◽  
Long Run ◽  
Inventory Investment ◽  
Short Run ◽  
The Interest Rate

This paper presents a model that provides an explanation, based on regime switching in the real interest rate and learning, of why tests based on stock-adjustment models, Euler equations, or decision rules—which emphasize short-run fluctuations in inventories and the interest rate—are unlikely to uncover a negative relationship between inventories and the real interest rate. The model, however, predicts that inventories will respond to long-run movements, that is, to regime shifts in the real interest rate. Tests emphasizing cointegration techniques confirm this prediction and show a significant long-run relationship between inventories and the real interest rate.

ANALISIS PENARIKAN HUTANG DALAM KAITNNYA DENGAN RENTABILITAS PADA PT. TUNAS BROTHERS DI BANDAR LAMPUNG

2017 ◽  
Vol 7 (1) ◽  
Author(s):  
Gunawan Gunawan
Keyword(s):  
Quantitative Analysis ◽  
Interest Rate ◽  
Beneficial Effect ◽  
Key Words ◽  
Profit Margin ◽  
Rate Of Return ◽  
Return On Equity ◽  
Equity Analysis ◽  
Analysis Tools ◽  
The Interest Rate

<p><em>This study aims to determine how the effects of the use of capital (derived from debt and own capital) is used by companies of the rate of return on equity. Is the policy for the withdrawal of debt has just run in the sense of providing a beneficial effect for the owners of the company. Hypothesis os : if the level of rate of return of the acquired company is greater than the amount the interest rate, then the withdrawal will have a positive debt to rate of return on equity. Analysis is done using quantitative analysis for the purpose of comparingthe theory that become the guidelines applied by the company’s application and the rentability analysis and quantitative analysis tools with ration analysis. Profit margin, operating Turnover assets, rate of return and rate of return on equity. From the results of research conducted was even its own capital rentability of the company acquired during the year under study shows a growing trend (5.35%, 6.78%, 11.68%, 8.66%) but the actual level of rtaae of return of own capital it can be achieved even greater (ie could reach 7.01%, 9.78%, 12.43%, 11.44%) if only the company during the year no interest loan.  </em></p><p>Key Words- <em>Debt, equity, rate of return.</em></p><p> </p>

Optimal capital structure in agricultural cooperatives and implications for equity retirement

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jeffrey Royer ◽  
Gregory McKee
Keyword(s):  
Interest Rate ◽  
Capital Structure ◽  
Financial Statements ◽  
Rate Of Return ◽  
Content Type ◽  
Optimal Capital Structure ◽  
Return On Capital ◽  
Optimal Capital ◽  
The Interest Rate ◽  
The Relationship

PurposeThis paper presents a model for determining the optimal capital structure for cooperatives and explores the relationship between financial leverage and the ability of cooperatives to retire member equity.Design/methodology/approachA model is developed to determine the optimal capital structure and explore the relationship between capital structure and the rate at which a cooperative can retire member equity. Using data from cooperative financial statements, ordinary least-squares regressions are conducted to test two hypotheses on capital structure and equity retirement.FindingsThe model shows that the optimal capital structure is determined by the ratio of the rate of return on capital employed to the interest rate on borrowed capital and the required level of interest coverage. The regressions suggest that cooperatives choose their capital structure largely according to the rate of return on capital employed and the interest rate in a manner consistent with maximizing the rate of return on equity and that the rate at which cooperatives can retire member equity is directly related to leverage.Research limitations/implicationsThe model does not consider unallocated earnings. Analysis of the relationship between leverage and equity retirement yields results contrary to the assumptions of earlier studies.Practical implicationsCooperatives can use the model because the necessary parameters are easily understood and readily available from financial statements, lenders and industry sources.Originality/valueThe model is developed specifically for determining the capital structure of cooperatives and differs substantially from the corporate model. A theoretical basis is provided for the relationship between leverage and equity retirement.

scholarly journals General theory of geometric Lévy models for dynamic asset pricing

2012 ◽  
Vol 468 (2142) ◽  
pp. 1778-1798 ◽  
Author(s):  
Dorje C. Brody ◽  
Lane P. Hughston ◽  
Ewan Mackie
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Risk Aversion ◽  
Foreign Exchange ◽  
Market Price ◽  
Nonlinear Function ◽  
Rate Of Return ◽  
Pricing Kernel ◽  
Kernel Approach ◽  
The Interest Rate

The geometric Lévy model (GLM) is a natural generalization of the geometric Brownian motion (GBM) model used in the derivation of the Black–Scholes formula. The theory of such models simplifies considerably if one takes a pricing kernel approach. In one dimension, once the underlying Lévy process has been specified, the GLM has four parameters: the initial price, the interest rate, the volatility and the risk aversion. The pricing kernel is the product of a discount factor and a risk aversion martingale. For GBM, the risk aversion parameter is the market price of risk. For a GLM, this interpretation is not valid: the excess rate of return is a nonlinear function of the volatility and the risk aversion. It is shown that for positive volatility and risk aversion, the excess rate of return above the interest rate is positive, and is increasing with respect to these variables. In the case of foreign exchange, Siegel's paradox implies that one can construct foreign exchange models for which the excess rate of return is positive for both the exchange rate and the inverse exchange rate. This condition is shown to hold for any geometric Lévy model for foreign exchange in which volatility exceeds risk aversion.

scholarly journals Investigating the Causal Linkages among Inflation, Interest Rate, and Economic Growth in Pakistan under the Influence of COVID-19 Pandemic: A Wavelet Transformation Approach

2021 ◽  
Vol 14 (6) ◽  
pp. 277
Author(s):  
Muhammad Azmat Hayat ◽  
Huma Ghulam ◽  
Maryam Batool ◽  
Muhammad Zahid Naeem ◽  
Abdullah Ejaz ◽  
...  
Keyword(s):  
Interest Rate ◽  
Granger Causality ◽  
Wavelet Transformation ◽  
Multi Scale ◽  
Long Run ◽  
Causality Tests ◽  
Short Run ◽  
The Interest Rate ◽  
The Relationship ◽  
Cross Wavelet

This research is the earliest attempt to understand the impact of inflation and the interest rate on output growth in the context of Pakistan using the wavelet transformation approach. For this study, we used monthly data on inflation, the interest rate, and industrial production from January 1991 to May 2020. The COVID-19 pandemic has affected economies around the world, especially in view of the measures taken by governmental authorities regarding enforced lockdowns and social distancing. Traditional studies empirically explored the relationship between these important macroeconomic variables only for the short run and long run. Firstly, we employed the autoregressive distributed lag (ARDL) cointegration test and two causality tests (Granger causality and Toda–Yamamoto) to check the cointegration properties and causal relationship among these variables, respectively. After confirming the long-run causality from the ARDL bound test, we decomposed the time series of growth, inflation, and the interest rate into different time scales using wavelet analysis which allows us to study the relationship among variables for the very short run, medium run, long run, and very long run. The continuous wavelet transform (CWT), the cross-wavelet transform (XWT), cross-wavelet coherence (WTC), and multi-scale Granger causality tests were used to investigate the co-movement and nature of the causality between inflation and growth and the interest rate and growth. The results of the wavelet and multi-scale Granger causality tests show that the causal relationship between these variables is not the same across all time horizons; rather, it is unidirectional in the short-run and medium-run but bi-directional in the long-run. Therefore, this study suggests that the central bank should try to maintain inflation and the interest rate at a low level in the short run and medium run instead of putting too much pressure on these variables in the long-run.

scholarly journals Analysis capital budgeting investment projects substation 150 kV for tires company

2020 ◽  
Vol 12 (2) ◽  
pp. 189
Author(s):  
Andi Setyawan ◽  
Hasbullah Hasbullah
Keyword(s):  
Interest Rate ◽  
Net Present Value ◽  
Electricity Consumption ◽  
Electrical Energy ◽  
Capital Budgeting ◽  
Payback Period ◽  
Rate Of Return ◽  
Internal Rate Of Return ◽  
Investment Projects ◽  
The Interest Rate

The electricity consumption continues to increase, including in Indonesia, where the average electricity consumption rises 6.86% per year. In line with the ever-increasing production needs of companies needing more electrical energy during these electrical disturbances often occur due to power shortage. Therefore, the company proposes the investment of the construction of substations 150kv Expected to improve the reliability of electrical energy supply. This research conducted to analyze the value of investment carried by tire companies using historical data and company forecasts using the technical method of economics to analyze its finances. Based on the calculation result with the Payback period (PP) and Discounted Payback Period generates 5.35 years and 6.24 years.  Meanwhile, in the calculation of net present value (NPV) obtained favorable results in the 6th year of Rp 40,944,770,640.32, using an interest rate of 5%. In the calculation of the internal rate of return (IRR), the result of 5.5% concluded that the project return is higher than the minimum attractive rate of return (MARR) of the company by 5.17% of the Bank Indonesia interest rate. Then based on the sensitivity analysis gained that the lower the interest rate on this project, then the faster the return on the investment, and vice versa. The overall analysis of the scenario stated that the investment is worthy of running because it brings profit directly to the company.

scholarly journals Empirical Analysis of Fiscal Sustainability and Optimal Level of Debt in Pakistan

2020 ◽  
Vol 7 (4) ◽  
pp. 282-292
Author(s):  
Sehrish Haleem ◽  
Awais Khan ◽  
Malik Adeel Ur Rahman
Keyword(s):  
Interest Rate ◽  
Public Debt ◽  
Significant Relationship ◽  
Government Expenditure ◽  
Optimal Level ◽  
Fiscal Sustainability ◽  
Public Expenditures ◽  
Long Run ◽  
Short Run ◽  
The Interest Rate

Through the current study it’s been tried to discuss that how fiscal sustainability is impacted by the debt which is taken by countries in order to push their economy towards prosperity and growth in Pakistan. Because the economy is considering vulnerable in terms of Public debt due to huge fiscal deficit in the economy. The ARDL approach is being applied by taking GDP as dependent variable while public debt, total revenues, government expenditures and interest rate are been taken as independent variable. The findings of the study suggested that there is strong and significant relationship exist between focused variables. Public debt is negatively associated with GDP in both short run and long run, while government expenditure give positive and significant relationship with GDP and interestingly total revenue give negative significant relationship in long run that supported the argument that the high revenues in developing nations inversely affects the investment that is pillar of GDP, so it adversely affected. The interest rate is positively significant in long run but in short run its negatively related with GDP because it affects cost of capital. The findings of study attract the attention of policy makers that we need either debt reduction strategies or either to minimize the gap between public revenues and public expenditures to promote sustain economic growth in the economy.

scholarly journals An Investigation into the Interest Elasticity of Demand for Money in Developing Countries: A Panel Data Approach

2017 ◽  
Vol 9 (3) ◽  
pp. 69 ◽  
Author(s):  
Felix S. Nyumuah
Keyword(s):  
Developing Countries ◽  
Panel Data ◽  
Interest Rate ◽  
Equatorial Guinea ◽  
African Countries ◽  
Demand For Money ◽  
Elasticity Of Demand ◽  
Long Run ◽  
Short Run ◽  
The Interest Rate

The issue as to whether the interest rate influences the demand for money in developing countries is still controversial. The aim of this study is to attempt to resolve this controversy. The study uses panel data from eight African countries to look at the interest elasticity of demand for money in developing countries. The countries used in the study are Angola (ANG), Equatorial Guinea (EQG), Gambia (GMB), Guinea-Bissau (GBS), Kenya (KNY), Mali (MLI), Nigeria (NGR) and Uganda (UGD). Overall, the study finds the interest rate to be inelastic in the short run but elastic in the long run. This finding suggests that monetary policy is ineffective in developing countries in the long run.

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