scholarly journals DEMAND FOR MONEY AND HAYEKIAN TRIANGLES

2021 ◽  
pp. 299-317
Author(s):  
Pavel Potuzak
Keyword(s):  
Interest Rate ◽  
Business Cycle ◽  
Production Process ◽  
Money Supply ◽  
Business Cycle Theory ◽  
Demand For Money ◽  
Market Interest Rate ◽  
Relative Demand ◽  
Graphical Tool ◽  
Late Stages

Friedrich August von Hayek (1935) developed a specific business cycle theory in which interactions between the real and monetary sectors play a central role. In the first version of the theory, shocks to the money supply deflect market interest rate from the natural level and thus give false signals to entrepreneurs about relative demand between present goods and future goods. This idea was represented in a simple graphical tool, which was later called the Hayekian triangle. The structure of capital and the production process are depicted in a diagram that maps flows of resources from early stages of production to late stages, and finally to the hands of the consumer. On the basis of this theory, the prelimi- nary recommendation for the monetary authority was to freeze the money supply in order to prevent fluctuations in the structure of production (Hayek 1928).

scholarly journals A FINANCIAL ANALYSIS OF RESWITCHING

2021 ◽  
pp. 220-244
Author(s):  
Rafael García Iborra
Keyword(s):  
Interest Rate ◽  
Business Cycle ◽  
Interest Rates ◽  
Inverse Relationship ◽  
Financial Analysis ◽  
Banking System ◽  
Weighted Average ◽  
Business Cycle Theory ◽  
Natural Level ◽  
The Interest Rate

The classical Austrian Business Cycle Theory (ABCT) is based on an inverse relationship between the so-called Average Period of Production (APP) or ‘roundaboutness’ and the interest rate. According to Böhm-Bawerk (1884 [1891]), the APP is the weighted average time that a unit of labor is locked up in the production process1; moreover, there is a positive relationship between savings (the ‘subsistence fund’) and the APP: the higher the latter the higher the former, which implies an inverse relationship between interest rates and the APP. Thus, a lower interest rate will lead to a higher APP ceteris paribus. Hayek (2008) based his Hayekian triangles on Böhm-Bawerk’s work: a lower (higher) interest rate leads to a more (less) rounda- bout structure of production, increasing (decreasing) the APP. Including Mises’s (1921) business cycle theory into the analysis, whenever the interest rate is pushed lower than its ‘natural level’, either by the central bank or the banking system, there is an unsus- tainable extension of the APP that will generate an economic boom; the crisis will irremediably follow, as the APP will pull back towards its natural level. From this brief characterization of the ABCT, it is easy to notice the key role of the inverse relationship between interest rates and roundaboutness; without it, there is no connection from changes in interest rates and roundaboutness, and the ABCT falls apart. The reswitching of techniques is precisely a counterexample to that relationship, as it claims there are situations in which lower interest rates do not lead to more roundabout productive struc- tures. The organization of this paper is as follows: the next section describes the reswitching of techniques as stated by Samuelson (1966) and the implication for the classical ABCT, based on a phys- ical measure of roundaboutness; section 3 analyzes the alternative of applying corporate finance to the ABCT following Cachanosky and Lewin (2014). Section 4 is a financial analysis of Samuelson’s example, argues why modified duration should replace Böhm- Bawerk’s APP as a measure of roundaboutness, and shows why it does not represent a paradox to the ABCT when the financial approach is used. Sections 5 and 6 address the question from two additional perspectives: a neoclassical with fully flexible prices but fixed techniques and the Austrian related dynamic efficiency.

MONETARY REGIMES, MONEY SUPPLY, AND THE USA BUSINESS CYCLE SINCE 1959: IMPLICATIONS FOR MONETARY POLICY TODAY

2021 ◽  
pp. 1-27
Author(s):  
Hylton Hollander ◽  
Lars Christensen
Keyword(s):  
Interest Rate ◽  
Business Cycle ◽  
Money Supply ◽  
Supply And Demand ◽  
Balance Sheet ◽  
Actual Behavior ◽  
Interest Rate Policy ◽  
Monetary Economy ◽  
The Usa ◽  
The Business Cycle

The monetary authority’s choice of operating procedure has significant implications for the role of monetary aggregates and interest rate policy on the business cycle. Using a dynamic general equilibrium model, we show that the type of endogenous monetary regime, together with the interaction between money supply and demand, does well to capture the actual behavior of a monetary economy—the USA. The results suggest that the evolution toward a stricter interest rate-targeting regime renders central bank balance sheet expansions ineffective. In the context of the 2007–2009 Great Recession, a more flexible interest rate-targeting regime would have led to a significant monetary expansion and more rapid economic recovery in the USA.

scholarly journals Empirical evidence on Non-Performing Loans and credit frictions: banking sector in Tunisia

2020 ◽  
Vol 2 (3) ◽  
pp. 171-183
Author(s):  
Salha Ben Salem ◽  
◽  
Moez Labidi ◽  
Nadia Mansour ◽  
◽  
...  
Keyword(s):  
Interest Rate ◽  
Error Correction ◽  
Money Supply ◽  
Banking Sector ◽  
Vector Error Correction Model ◽  
Correction Model ◽  
Vector Error Correction ◽  
Vector Error ◽  
Market Interest Rate ◽  
Credit Frictions

Purpose: This paper explores the most important determinants of friction in the Tunisian credit market. The previous literature argued that friction is largely explained by the increase in Non-Performing Loans Nkusu, 2011; Abadi et al. 2014; Rulyasri et al.2017, Roland et all, 2013. Research methodology: We constructed a multivariate Vector Error Correction Model, with five macroeconomic variables (industrial production index, the money supply, money market interest rate) to examine the impact of Non-Performing Loans increase in amplifying the Tunisian credit frictions. Results: The Vector Error Correction Model (VECM) regression results show a negative and important relationship between economic growth and Non-Performing Loans (NPL) ratio, which is very robust during the political crisis of 2011. The money market interest rate and the money supply are positively related to the Non-Performing loan ratio. Limitation: This study was only focused on Tunisian banking sector as one of the pillars of the Tunisian economy. Contributions: This highlights that the nature of the monetary policy adopted by the monetary authority of Tunisia plays a significant role in the fluctuation of the Non-Performing Loans ratio. Bank capitalization is positively and statistically significant with Non-Performing Loan ratio, implying that banks with a low level of capital are more likely to have a riskier credit portfolio that causes the increase of Non-Performing Loans in their balance sheet.

scholarly journals The impact of the excess reserves of the banking sector on interest rates and money supply in Poland

2021 ◽  
Author(s):  
Mariusz Kapuściński ◽  
Ilona Pietryka
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Money Supply ◽  
Banking Sector ◽  
Money Market ◽  
Vector Autoregressive ◽  
Excess Reserves ◽  
Market Interest Rate ◽  
The Impact

In this monograph we aim to analyse the effects of leaving excess reserves in the banking sector by the central bank on the level and the variability of interest rates, as well as on money supply. To this end, we use mainly data for Poland, but in some cases, for robustness, also for a panel of Poland, the euro area, the Czech Republic and Hungary, as there had only been a limited variability in some policy variables in our sample for Poland. We estimate the parameters of GARCH, (P)VAR (vector autoregressive or panel vector autoregressive) and (panel) linear regression models. We find that excess reserves affect the level and the variability of an overnight money market interest rate. However, the variability of the overnight money market interest rate, shaped to a large extent by excess reserves, does not affect the level of longer-term interest rates, and we find little evidence of its impact on their variability. Neither do excess reserves translate into higher money supply. Our results imply that the current monetary policy operational framework in Poland is adequate to ensure the transmission of the central bank policy rate to money market interest rates. Furthermore, it appears unlikely that raising the amount of excess reserves left, as proposed by some policymakers, would affect money supply. Instead, it would lower the money multiplier and the overnight money market interest rate, as well as increase its volatility.

scholarly journals Preferencia temporal, múltiples tipos de interés y la teoría austriaca del ciclo económico

2021 ◽  
pp. 13-63
Author(s):  
Alejandro J. Zamora
Keyword(s):  
Interest Rate ◽  
Business Cycle ◽  
Interest Rates ◽  
Term Structure ◽  
Jel Classification ◽  
Business Cycle Theory ◽  
Austrian Business Cycle Theory ◽  
Preference Theory ◽  
Austrian Business Cycle ◽  
The One

Traditional expositions of the Austrian Business Cycle Theory (ABCT) rest on the reference to only one – equilibrium – interest rate. This paper, on the one hand, explores the theoretical validity of such a reference and, on the other hand, analyses whether it is essential to the ABCT. To address both issues, we depart from a defense of the recently-disputed Pure Time Preference Theory (PTPT), which purports to explain the cause of the phenomenon of interest and serves as a basis for the ABCT. In the light of our study, in the first place, we reject some of the formulations of the PTPT that lead to erroneous interpretations of this theory and we put forward an enunciation that avoids common confu-sions; secondly, we deny the validity of the reference to only one interest rate as well as its essentiality to the ABCT; finally, we point out the necessity of up-dating the exposition of the ABCT in consonance with the previous conclusions. Key words: Austrian Business Cycle Theory, Business Cycles, Pure Time Prefe-rence Theory, Interest Rates, Term Structure of Interest Rates. JEL Classification: E32, E40, E43, E50, B53. Resumen: Las exposiciones tradicionales de la Teoría Austriaca del Ciclo Eco-nómico (TACE) se apoyan en la referencia a un único tipo de interés de equili-brio. Este artículo, por un lado, explora la cuestión de la validez teórica de dicha referencia y, por otro, estudia si ésta es realmente esencial a la TACE. Para analizar dichas cuestiones, partimos de una defensa de la recientemente cuestionada Teoría de la Preferencia Temporal Pura (TPTP), teoría que preten-de explicar la causa del fenómeno del interés y que sirve de fundamento a la TACE. A la luz de nuestro estudio, en primer lugar, rechazamos ciertas formu-laciones de la TPTP que conducen a interpretaciones erróneas de la misma, proponiendo una enunciación de la teoría que evita confusiones comunes; se-gundo, negamos la validez de la referencia a un tipo de interés único y su carácter esencial a la TACE; por último, notamos la necesidad de actualizar la exposición de la TACE conforme a las conclusiones antedichas. Palabras clave: Teoría Austriaca del Ciclo Económico, Ciclos Económicos, Teo-ría de la Preferencia Temporal Pura, Tipos de Interés, Estructura de Tipos de Interés. Clasificación JEL: E32, E40, E43, E50, B53.

scholarly journals The Demand for Money in Nepal: An Analysis Using Vector Error Correction Model

2019 ◽  
Vol 2 ◽  
pp. 10-17
Author(s):  
Deepak Neupane
Keyword(s):  
Interest Rate ◽  
Money Supply ◽  
Money Demand ◽  
Unit Root ◽  
Demand Function ◽  
Unit Root Test ◽  
Demand For Money ◽  
Money Demand Function ◽  
Real Gdp ◽  
Integration Test

This paper examines the demand for money in Nepal. Accordingly, time series techniques such as Unit Root Test, Co-integration test approach were conducted considering the annual data from 1975 to 2019. The results of the unit root test indicate that the variables are stationary at the first order difference. Moreover, the co-integration test state that there is co-integration among the real broad money supply, real GDP at producer price, inflation and the interest rate, after taking the logs of real broad money supply, real GDP and interest rate and taking the first difference of all the considered variables, which makes the series normal and stationary respectively. Besides the results of the CUSUM test indicate the stability of the model. The results of the VECM show that there exists the long-run causality of the determinants on the money demand function whereas, out of the considered variables, none has the short-run causality on the money demand function. Moreover, ordinary least square method was also conducted to compute the coefficient of parameters which showed that though only one, real GDP, out of three, was found to be significant, the model was found to be good fit with the value of R-squared 0.9933 stating that the 99.33 percent variation in the dependent variable is explained by the explanatory variables.

scholarly journals Minsky’s Financial Instability Hypothesis vs. Austrian Business Cycle Theory

2018 ◽  
pp. 155-186
Author(s):  
Olga Peniaz
Keyword(s):  
Comparative Analysis ◽  
Interest Rate ◽  
Business Cycle ◽  
Empirical Studies ◽  
Jel Classification ◽  
Financial Instability ◽  
Business Cycle Theory ◽  
Austrian Business Cycle Theory ◽  
Palabras Clave ◽  
Austrian Business Cycle

This article represents a detailed theoretical analysis, focusing on two heterodox theories: the Minsky’s Financial Instability Hypothesis and the Aus- trian Business Cycle Theory, particularly in the light of the 2008 crisis. It provi- des a theoretical comparative analysis of these theories and a review of the empirical studies of two approaches. Keywords: Economic crisis, interest rate, austrian business cycle theory, finan- cial instability hypothesis. JEL Classification: E32, E44, E52, E58. Resumen: Este artículo ofrece un análisis teórico detallado, centrado en dos teorías heterodoxas: la Hipótesis de la Inestabilidad Financiera de Minsky y la Teoría Austríaca del Ciclo Económico, especialmente en vista de la crisis de 2008. Este trabajo proporciona un análisis comparativo teórico de estas teo- rías y una revisión de los estudios empíricos de ambos enfoques. Palabras clave: Crisis económica, tipo de interés, teoría austriaca del ciclo eco- nómico, hipótesis de inestabilidad financiera. Clasificación JEL: E32, E44, E52, E58.

Oil, Rates and Inflation

2005 ◽  
pp. 4-20
Author(s):  
E. Yasin
Keyword(s):  
Economic Growth ◽  
Money Supply ◽  
Raw Materials ◽  
Gdp Growth ◽  
Business Activity ◽  
Demand For Money ◽  
Percentage Points

Currency inflow in Russia from raw materials exports allows taking into account high business activity to assimilate growing money supply transforming it into economic growth. Fall in business activity as a result of pressure on business led to saturation of demand for money. This considerably increases the danger of inflation growth and requires sterilization of excess money supply including the usage of the Stabilization Fund. According to the author's estimates, corresponding losses in GDP growth will equal 1-2 percentage points per year.

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.

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