The Reality of the Real Rate

2015 ◽  
Vol 5 (2) ◽  
pp. 270 ◽  
Author(s):  
Kelsey Berro ◽  
Gregory Colman ◽  
Dhaval M Dave
Keyword(s):  
Interest Rates ◽  
Inflation Expectations ◽  
Purchasing Power ◽  
Fixed Rate ◽  
Standard Assumption ◽  
Important Distinction ◽  
Real Rate ◽  
Money Illusion ◽  
The Impact ◽  
Home Buying

<p class="ber">Prevailing economic theory suggests an important distinction between nominal and real values. This concept of purchasing power helps explain the motivation behind basic economic decisions such as whether to invest, save, or consume. Consumers and businesses that make decisions without consideration of purchasing power are assumed to exhibit “money illusion”, the failure to adjust nominal values for changes in prices. The standard assumption used for macroeconomic theory and modeling is that consumers and investors lack money illusion, that is, their consumption and investment responds to real variables. This study tests this standard assumption, and examines the effects of nominal and real interest rates on home buying attitudes using micro-data from the University of Michigan: Survey of Consumers. More specifically, the purpose of this research is to compare the impact of various mortgage rates on home buying optimism including the traditional 30-year-fixed rate, the personal real rate calculated using respondents’ one and five-year inflation expectations, and the market real rate calculated from the 30-year TIPS breakeven rate. This is the first study that tests person-specific real rates generated from survey data in addition to market-wide real rates to answer this question. Across all models, results reveal that the nominal rate is more highly influential than real rates in determining home buying optimism. These results have implications for further adjustment to standard macroeconomic modeling.</p>

scholarly journals Investment Decision In Micro, Small And Medium Enterprises In Indonesia*

2013 ◽  
Vol 14 (1) ◽  
pp. 1
Author(s):  
Siti Aisyah Tri Rahayu
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Cash Flow ◽  
Investment Decision ◽  
Inflation Expectations ◽  
Real Sector ◽  
Debt Ratio ◽  
The Real ◽  
Internal Capital ◽  
The Impact

The purpose of this study are: First, to analyze is there any significant influence among debt ratio, internal capital, cash flow, inflation expectations and the expectations of rupiah exchange rate against the decisions of businessmen in the real sector to invest or not to invest; Second, to analyze the impact of the variables perception mortgage interest rates, perceptions of bank regulation, internal capital and cash flow on debt ratio of the real sector (leverage). Investment decision model is estimated using logit models. The results of regression estimates the overall good for business and risk analysis for financial risk shows that almost all explanatory variables in the equation are statistically significant. There are three variables have a positive influence on the investment decisions taken by the businesses i.e. the debt ratio, cash flow and exchange rate expectations.

scholarly journals High-Frequency Estimates of the Natural Real Rate and Inflation Expectations

2021 ◽  
Vol 2021 (034) ◽  
pp. 1-32
Author(s):  
Alex Aronovich ◽  
◽  
Andrew Meldrum ◽  
Keyword(s):  
Interest Rates ◽  
High Frequency ◽  
Global Financial Crisis ◽  
Inflation Expectations ◽  
Study Analysis ◽  
Bond Yields ◽  
Short Term ◽  
Real Rate ◽  
Nominal Interest Rates ◽  
The Global Financial Crisis

We propose a new method of estimating the natural real rate and long-horizon inflation expectations, using nonlinear regressions of survey-based measures of short-term nominal interest rates and inflation expectations on U.S. Treasury yields. We find that the natural real rate was relatively stable during the 1990s and early 2000s, but declined steadily after the global financial crisis, before dropping more sharply to around 0 percent during the recent COVID-19 pandemic. Long-horizon inflation expectations declined steadily during the 1990s and have since been relatively stable at close to 2 percent. According to our method, the declines in both the natural real rate and long-horizon inflation expectations are clearly statistically significant. Our estimates are available at whatever frequency we observe bond yields, making them ideal for intraday event-study analysis--for example, we show that the natural real rate and long-horizon inflation expectations are not affected by temporary shocks to the stance of monetary policy.

scholarly journals Accounting for Low Long-Term Interest Rates: Evidence from Canada

2020 ◽  
pp. 1.000-72.000
Author(s):  
Jens H. E. Christensen ◽  
◽  
Glenn D. Rudebusch ◽  
Patrick J. Shultz ◽  
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Inflation Expectations ◽  
Real Rate ◽  
Inflation Risk ◽  
Risk Premiums ◽  
Term Structure Model ◽  
Sovereign Credit Risk ◽  
Debt Market

In recent decades, long-term interest rates around the world have fallen to historic lows. We examine this decline using a dynamic term structure model of Canadian nominal and real yields with adjustments for term, liquidity, and inflation risk premiums. Canada provides a useful case study that has been little examined despite its established indexed debt market, negligible distortions from monetary quantitative easing or the zero lower bound, and no sovereign credit risk. We find that since 2000, the steady-state real interest rate has fallen by more than 2 percentage points, long-term inflation expectations have edged down, and real bond and inflation risk premiums have fluctuated but shown little longer-run trend. Therefore, the drop in the equilibrium real rate appears largely to account for the lower new normal in interest rates.

scholarly journals GIBSON PARADOX REVISITED – LIQUIDITY CHAIN EFFECT

2014 ◽  
Vol 16 (3) ◽  
pp. 510-528 ◽  
Author(s):  
Marinko Škare ◽  
Lorena Mošnja-Škare
Keyword(s):  
Interest Rates ◽  
Price Change ◽  
Inflation Expectations ◽  
Purchasing Power ◽  
Short Term ◽  
Policy Makers ◽  
Monetary Regimes ◽  
Study Results ◽  
Gibson Paradox ◽  
Nonlinear Nature

Gibson paradox remains a puzzle in the discipline of economics. Previous studies attempted to resolve the paradox looking separately at the gold standard, changing monetary regimes, inflation expectations, risk and uncertainty. Our study shows Gibson paradox holds for the Netherlands 1800-2012 with real long interest rates and prices diverging after 2008. This paper offers empirical evidence (nonlinear cointegration) on the integrity of the Gibson paradox. Single factor cannot explain the paradox itself (because of its nonlinear nature) as previous studies attempted. Empirical link between long interest rates and prices is caused by complex interaction between purchasing power, liquidity, gold prices, market turnover, stocks accumulation, productivity, short-term interest rates. This approach analysis the purchasing power and price relation, resulting in firms’ turnover and liquidity shifts, leading to short-term borrowings changes and pressures on interest rates in the short as well as in long-term. Actually, the model enables us to track the series of price change effects finally resulting in interest rates shifts, via a set of microeconomic and financial laws, which taken at the aggregate level could offer the Gibson paradox explanation. Further studies must explore nonlinear nature of the paradox in order to explain it. Study results have important implications for policy makers and firm governance policy.

Crowding Out during Britain's Industrial Revolution

1990 ◽  
Vol 50 (1) ◽  
pp. 109-131 ◽  
Author(s):  
Robert A. Black ◽  
Claire G. Gilmore
Keyword(s):  
Interest Rates ◽  
Industrial Revolution ◽  
Historical Data ◽  
Rate Equations ◽  
Inflation Expectations ◽  
Crowding Out ◽  
Real Rate ◽  
Allocation Model ◽  
Household Saving ◽  
Saving Decisions

Contrary to earlier assertions, the historical data for Britain do confirm a (lagged) crowding-out effect during the Industrial Revolution. Heavy government borrowing after 1793 for the wars with France raised interest rates. These results are confirmed with nominal-interest-rate equations rather than with real-rate equations, which impose restrictive assumptions about the adjustment of nominal rates to inflation expectations. We see no reason to abandon the neoclassical, factor- allocation model of saving and investment in favor of a theory asserting that firms accumulate capital for investment independently of household saving decisions.

DAMPAK KEBIJAKAN FISKAL TERHADAP KINERJA SEKTOR PERTANIAN DI SULAWESI TENGGARA

2017 ◽  
Vol 1 (1) ◽  
Author(s):  
La Ode Jabuddin ◽  
Ayub M Padangaran ◽  
Azhar Bafadal Bafadal
Keyword(s):  
Fiscal Policy ◽  
Interest Rates ◽  
Agricultural Sector ◽  
Simultaneous Equations ◽  
Poor People ◽  
Land Area ◽  
Factors Affecting ◽  
Historical Simulation ◽  
The Impact ◽  
Direct Expenditure

This study aims to: (1) Knowing the dynamics of fiscal policy and the performance of the agricultural sector, (2) Analyze the factors that influence fiscal policy and the performance                   of the agricultural sector, and (3) Analyzing the impact of fiscal policy on the performance of the agricultural sector. The data used in this study were pooled 2005-2013 data in the aggregate. Econometric model the impact of fiscal policy on the performance of the agricultural sector is built in the form of simultaneous equations, consisting of 7 equations with 25 total variables in the model, 7 endogenous variables, 12 exogenous variables, and 6 variables lag. The model is estimated by 2SLS method SYSLIN procedures and historical simulation with SIMNLIN procedure.The results showed that: (1) The development of fiscal policy in Southeast Sulawesi from year to year tends to increase, (2) The performance of the agricultural sector from the aspect of GDP has decreased, from the aspect of labor is still consistent, in terms of investment to grow positively, and assign roles which means to decrease the number of poor people, (3) factors affecting fiscal policy is local revenues, equalization funds, other revenues, as well as the lag fiscal policy, (4) the factors that affect the performance of the agricultural sector from the aspect GDP is labor, direct expenditure and GDP lag; from the aspect of labor is the total labor force, investment, land area, direct expenditure, as well as the lag of labor; from the aspect of investment is influenced by GDP per capita, land area, interest rates and investment lag; as well as from the aspect of poor people, are affected by population, investments, direct expenditure and poverty lag, (5). Fiscal policy impact on the agricultural sector GDP increase, a decrease in the number of poor, declining agricultural laborers, and a decrease in the amount of investment in the agricultural sector.Keywords: Fiscal policy, the performance of the agricultural sector, the simultaneous equations

FAKTOR DETERMINAN PENYALURAN KREDIT BANK PERSERO

2018 ◽  
Vol 23 (1) ◽  
pp. 60-71
Author(s):  
Wigiyanti Masodah
Keyword(s):  
Interest Rate ◽  
Linear Regression ◽  
Interest Rates ◽  
Regression Models ◽  
Linear Regression Models ◽  
Negative Impacts ◽  
Main Activity ◽  
The Impact ◽  
The Given ◽  
Multiple Linear Regression Models

Offering credit is the main activity of a Bank. There are some considerations when a bank offers credit, that includes Interest Rates, Inflation, and NPL. This study aims to find out the impact of Variable Interest Rates, Inflation variables and NPL variables on credit disbursed. The object in this study is state-owned banks. The method of analysis in this study uses multiple linear regression models. The results of the study have shown that Interest Rates and NPL gave some negative impacts on the given credit. Meanwhile, Inflation variable does not have a significant effect on credit given. Keywords: Interest Rate, Inflation, NPL, offered Credit.

scholarly journals Mobile Money Use: The Impact of Macroeconomic Policy and Regulation

Economies ◽  
2021 ◽  
Vol 9 (2) ◽  
pp. 51
Author(s):  
Lorna Katusiime
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Financial Innovation ◽  
Macroeconomic Policy ◽  
Mobile Money ◽  
Distributed Lag ◽  
Distributed Lag Model ◽  
Long Run ◽  
Short Run ◽  
The Impact

This paper examines the effects of macroeconomic policy and regulatory environment on mobile money usage. Specifically, we develop an autoregressive distributed lag model to investigate the effect of key macroeconomic variables and mobile money tax on mobile money usage in Uganda. Using monthly data spanning the period March 2009 to September 2020, we find that in the short run, mobile money usage is positively affected by inflation while financial innovation, exchange rate, interest rates and mobile money tax negatively affect mobile money usage in Uganda. In the long run, mobile money usage is positively affected by economic activity, inflation and the COVID-19 pandemic crisis while mobile money customer balances, interest rate, exchange rate, financial innovation and mobile money tax negatively affect mobile money usage.

Overburdened Gauls: the case of Florus and Sacrovir’s revolt of 21 CE

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Jared Kreiner
Keyword(s):  
Interest Rates ◽  
Large Scale ◽  
Cumulative Effect ◽  
Short Term ◽  
Local Economies ◽  
Scale Resistance ◽  
Military Campaigns ◽  
The Impact

Abstract In 21 CE, a series of localized movements broke out in Gallia Comata due to heavy debts among provincials according to Tacitus. Modern scholars have long argued that the indebtedness occurred because of rising interest rates, resulting from dwindling currency in circulation after decades of free-spending following Augustus’ victory at Actium, and that Gallic communities were subjected to an additional tribute to support the wars of Germanicus (14–16 CE), which continued unabated after the wars and pushed Gauls beyond their means. These claims are misguided, however, in that there is no certain evidence of a special tax to support Germanicus’ wars and that the argument for a dwindling circulation of currency in Gaul falters under closer inspection. Rather, the pressing statal and military needs imposed on communities in Gallia Comata after 9 CE on top of routine exactions could significantly increase burden levels levied on provincial populations, thus contributing to rising debts. Through examining how Roman logistics and conscription operated in this period, it is possible to trace how populations were impacted by such demands and which communities were most heavily affected by them, too. Individually, the impact of each factor is unlikely to have been burdensome enough to have caused large-scale resistance, it is only the cumulative effect that these explanations had on top of routine Roman extraction schemes that could create the conditions for this revolt. This paper argues that in extraordinary circumstances, such as the period after the Varian Disaster for Gallia Comata, the costs of supporting military campaigns places real short-term strains on local economies, which creates the conditions for revolt. The benefit of this approach is that it may explain other episodes of anti-fiscal resistance that broke out during or within a decade of wars in neighboring regions.

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