scholarly journals A Paradox: An Empiric Approach to Inflation-Interest Rates Relationship: Evidence from Turkey

2019 ◽  
Vol 11 (3) ◽  
pp. 49
Author(s):  
Gülgün Çiğdem
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Weighted Average ◽  
Central Banks ◽  
Short Term ◽  
Causality Test ◽  
Policy Makers ◽  
High Interest Rate ◽  
Economic Agents ◽  
The Republic

In today’s world where the independence of central banks is questioned and the recessionary process is discussed, serious debates are experienced between economists and policy makers regarding the paradoxical relationship between two important macro-economic variables; Is inflation the cause of interest rate or is interest rate the cause of inflation? Determination of the causality and its direction is very crucial for the economies which are trying to extricate themselves from the high inflation – high interest rate spiral. The researchers searching for an answer to these discussions have conducted various analyses to test the validity of the Fisher Effect. In these analyses, inflation rate and nominal interest rate -as per the hypothesis- were considered as the variables. However, economic agents make their decisions depending on real values rather than nominal values. The purpose of this study is to provide a real and up-to-date approach to these debates which actually began in 1700s and have been ongoing in the triangle of financial markets-central banks-policy makers. For this purpose, the monthly averages regarding the 2011:01-2019:06 period of Turkey were calculated based on the Weighted Average Cost of Funding (WACF) daily data of The Central Bank of the Republic of Turkey (CBRT) and subjected to the cointegration analyses with the annual CPI figures. While Engle-Granger Test was used to test the long-term relationship, Granger Causality Test was performed to determine the relationship and its direction in the short term through VECM. As a result of the analysis, bilateral causality among variables was determined in the short term. In other words, inflation is a cause of interest rate and interest rate is a cause of inflation. This study makes a contribution to the literature since no study, which detected a bilateral correlation, has been found.

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%.

MODELING NONLINEAR AND HETEROGENEOUS DYNAMIC LINKS IN INTERNATIONAL MONETARY MARKETS

2012 ◽  
Vol 16 (S2) ◽  
pp. 232-251 ◽  
Author(s):  
Mohamed El Hedi Arouri ◽  
Fredj Jawadi ◽  
Duc Khuong Nguyen
Keyword(s):  
United Kingdom ◽  
Interest Rate ◽  
Interest Rates ◽  
Error Correction ◽  
The United States ◽  
Central Banks ◽  
Short Term ◽  
Error Correction Models ◽  
The United Kingdom ◽  
Dynamic Links

We use daily short-term interbank interest rates of France, the United Kingdom, and the United States to examine the dynamic links of international monetary markets from 2004 to 2009. Results from vector error-correction models and smooth-transition error-correction models show strong evidence of nonlinear and heterogeneous causalities between the three interest rates. We also find that changes in the U.S. interest rate deviations from the long-run equilibrium led those in France and in the United Kingdom by one to two days. Finally, the national interest rate nexus appears to converge in nonlinear fashion toward a steady state because it is subject to structural change beyond a certain rate threshold. Our findings have important implications for the actions of leading central banks (ECB, Bank of England, and U.S. Fed) because the joint behavior of short-term interest rates can be viewed as an indicator of the degree of central banks' policy interdependence.

scholarly journals CANDIDE et la monnaie

2009 ◽  
Vol 52 (1) ◽  
pp. 75-103
Author(s):  
Jean-Pierre Aubry ◽  
Pierre Duguay
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Structural Equations ◽  
Reduced Form ◽  
Real Sector ◽  
Short Term ◽  
The Real ◽  
Structure Equations

Abstract In this paper we deal with the financial sector of CANDIDE 1.1. We are concerned with the determination of the short-term interest rate, the term structure equations, and the channels through which monetary policy influences the real sector. The short-term rate is determined by a straightforward application of Keynesian liquidity preference theory. A serious problem arises from the directly estimated reduced form equation, which implies that the demand for high powered money, but not the demand for actual deposits, is a stable function of income and interest rates. The structural equations imply the opposite. In the term structure equations, allowance is made for the smaller variance of the long-term rates, but insufficient explanation is given for their sharper upward trend. This leads to an overstatement of the significance of the U.S. long-term rate that must perform the explanatory role. Moreover a strong structural hierarchy, by which the long Canada rate wags the industrial rate, is imposed without prior testing. In CANDIDE two channels of monetary influence are recognized: the costs of capital and the availability of credit. They affect the business fixed investment and housing sectors. The potential of the personal consumption sector is not recognized, the wealth and real balance effects are bypassed, the credit availability proxy is incorrect, the interest rate used in the real sector is nominal rather than real, and the specification of the housing sector is dubious.

Determinants of Treasury-LIBOR Swap Spreads

2005 ◽  
Vol 08 (04) ◽  
pp. 687-705 ◽  
Author(s):  
D. K. Malhotra ◽  
Vivek Bhargava ◽  
Mukesh Chaudhry
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Default Risk ◽  
Yield Curve ◽  
Short Term ◽  
Long Run ◽  
Interest Rate Volatility ◽  
Short Run ◽  
Using Data ◽  
Swap Spreads

Using data from the Treasury versus London Interbank Offer Swap Rates (LIBOR) for October 1987 to June 1998, this paper examines the determinants of swap spreads in the Treasury-LIBOR interest rate swap market. This study hypothesizes Treasury-LIBOR swap spreads as a function of the Treasury rate of comparable maturity, the slope of the yield curve, the volatility of short-term interest rates, a proxy for default risk, and liquidity in the swap market. The study finds that, in the long-run, swap spreads are negatively related to the yield curve slope and liquidity in the swap market. We also find that swap spreads are positively related to the short-term interest rate volatility. In the short-run, swap market's response to higher default risk seems to be higher spread between the bid and offer rates.

How Do Homeowners Choose Between Fixed and Adjustable Rate Mortgages?

2016 ◽  
Vol 06 (04) ◽  
pp. 1650013 ◽  
Author(s):  
Yevgeny Mugerman ◽  
Moran Ofir ◽  
Zvi Wiener
Keyword(s):  
Interest Rate ◽  
Housing Prices ◽  
Optimal Choice ◽  
Housing Finance ◽  
Short Term ◽  
Fixed Rate ◽  
High Interest Rate ◽  
Theoretical Literature ◽  
Rate Environment ◽  
Adjustable Rate

Housing is the most important asset in the portfolio of most households. Understanding the households’ decision on housing finance has important implications from a policy perspective, due to the effects it may have on the housing prices, on the housing market stability and on household welfare. The theoretical literature on housing finance focused on figuring out the optimal choice between fixed rate mortgages (FRMs) and adjustable rate mortgages (ARMs). We argue that the standard economic criteria are sometimes inadequate to explain household’s choices, which may be motivated by psychological factors. In other words, we claim that household’s choice depends only partially on the findings of the theoretical literature. We examine the effect of changes in the short-term market interest rate on the households’ choice between FRMs and ARMs. We test this effect using a unique data provided to us by the Bank of Israel, which contains detailed information on the household’s decision between FRM and ARM contracts in Israel in the past decade. The results of our analysis demonstrate a significant association between FRM preference and short-term interest rate reduction. Moreover, we find that the change in the short-term interest rate is more salient to the borrowers in periods of a high interest rate environment. We attribute these findings to Tversky and Kahneman (1974) availability and representativeness heuristics.

scholarly journals The role of investments in increasing economic efficiency in agricultural infrastructure

2020 ◽  
Vol 199 (8) ◽  
pp. 58-64
Author(s):  
Ramzi Abdullaev
Keyword(s):  
Interest Rates ◽  
Economic Efficiency ◽  
Systematic Approach ◽  
Mathematical Function ◽  
Short Term ◽  
Agricultural Economy ◽  
Agricultural Industry ◽  
Fixed Assets ◽  
The Republic

Abstract. The purpose of this study is to determine the role of investments in the development of agricultural infrastructure, including in the development of new approaches to the formation and use of investments as a factor in increasing the economic efficiency of the agricultural economy. The research method is comparative and analytical analysis, calculations using the “eviews” software package and a systematic approach. To determine the possibilities of creating the volume of investment products directed to fixed capital in agriculture, it is possible to construct a mathematical function of investment in agriculture, both in theoretical and practical terms. For example, in the form of the dependence of investments in fixed assets in agriculture on the volume of products produced, depending on the rate of return in agriculture, interest rates, etc. As a result of the study, the main directions of investment attempts to increase economic efficiency in agricultural industry. It was concluded that investments in agriculture in the Republic of Azerbaijan increased by 393.9 million manats in 2010 compared to 2003, and by 727 million manats in 2018. However, this growth is not at the desired level. In short-term and closed economic conditions, the multiplicative efficiency can be higher. The scientific novelty of the study consists in clarifying the essence and role of investment as an economic category based on its definition in both a narrow and a broad sense, as well as in identifying trends and patterns in the formation and use of investments in the agricultural economy.

scholarly journals Does the Interest Rate Form Business Cycle?

2019 ◽  
Vol 4 (1) ◽  
pp. 29-34
Author(s):  
Bijan Bidabad ◽  
Abul Hassan
Keyword(s):  
Interest Rate ◽  
Business Cycle ◽  
Interest Rates ◽  
Banking System ◽  
Real Economy ◽  
Short Term ◽  
The Usa ◽  
Rate Form ◽  
The Interest Rate

Dynamic structural behavior of depositor, bank and borrower and the role of banks in forming business cycle are investigated. We test the hypothesis that does banks behavior make oscillations in the economy through the interest rate. By dichotomizing banking activities into two markets of deposit and loan, we show that these two markets have non-synchronized structures, and this is why the money sector fluctuation starts. As a result, the fluctuation is transmitted to the real economy through saving and investment functions. Empirical results assert that in the USA, the banking system creates fluctuations in the money sector and real economy as well through short-term interest rates

scholarly journals A Study on Estimation and Prediction of Vector Time Series Model Using Financial Big Data (Interest Rates)

2021 ◽  
Vol 12 (5) ◽  
pp. 309-316
Author(s):  
Jae-Hyun Kim, Chang-Ho An
Keyword(s):  
Time Series ◽  
Interest Rate ◽  
Prediction Model ◽  
Interest Rates ◽  
Time Series Data ◽  
Information Criteria ◽  
Series Data ◽  
Call Rate ◽  
Causality Test ◽  
Vector Autoregressive

Due to the global economic downturn, the Korean economy continues to slump. Hereupon the Bank of Korea implemented a monetary policy of cutting the base rate to actively respond to the economic slowdown and low prices. Economists have been trying to predict and analyze interest rate hikes and cuts. Therefore, in this study, a prediction model was estimated and evaluated using vector autoregressive model with time series data of long- and short-term interest rates. The data used for this purpose were call rate (1 day), loan interest rate, and Treasury rate (3 years) between January 2002 and December 2019, which were extracted monthly from the Bank of Korea database and used as variables, and a vector autoregressive (VAR) model was used as a research model. The stationarity test of variables was confirmed by the ADF-unit root test. Bidirectional linear dependency relationship between variables was confirmed by the Granger causality test. For the model identification, AICC, SBC, and HQC statistics, which were the minimum information criteria, were used. The significance of the parameters was confirmed through t-tests, and the fitness of the estimated prediction model was confirmed by the significance test of the cross-correlation matrix and the multivariate Portmanteau test. As a result of predicting call rate, loan interest rate, and Treasury rate using the prediction model presented in this study, it is predicted that interest rates will continue to drop.

scholarly journals Risks and the influence of negative interest rates on economic activity: a case study of Sweden, Denmark, and Switzerland

2020 ◽  
Vol 15 (1) ◽  
pp. 30-41
Author(s):  
Liběna Černohorská ◽  
Darina Kubicová
Keyword(s):  
Time Series ◽  
Interest Rates ◽  
Granger Causality ◽  
Economic Activity ◽  
Central Banks ◽  
Time Interval ◽  
Short Term ◽  
Stock Indices ◽  
Negative Interest Rates ◽  
The Impact

The purpose of this paper is to analyze the impact of negative interest rates on economic activity in a selected group of countries, in particular Sweden, Denmark, and Switzerland, for the period 2009–2018. The central banks of these countries were among the first to implement negative interest rates to revive the economic growth. Therefore, this study analyzed long- and short-term relationships between interest rates announced by central banks and gross domestic product and blue chip stock indices. Time series analysis was conducted using Engle-Granger cointegration analysis and Granger causality testing to identify long- and short-term relationship. The first step, using the Akaike criteria, was to determine the optimal delay of the entire time interval for the analyzed periods. Time series that seem to be stationary were excluded based on the results of the Dickey-Fuller test. Further testing continued with the Engle-Granger test if the conditions were met. It was designed to identify co-integration relationships that would show correlation between the selected variables. These tests showed that at a significance level of 0.05, there is no co-integration between any time series in the countries analyzed. On the basis of these analyses, it was determined that there were no long-term relationships between interest rates and GDP or stock indices for these countries during the monitored time period. Using Granger causality, the study only confirmed short-term relationship between interest rates and GDP for all examined countries, though not between interest rates and the stock indices. Acknowledgment The paper has been created with the financial support of The Czech Science Foundation GACR 18-05244S – Innovative Approaches to Credit Risk Management.

scholarly journals Negative Interest Rate Risk. Atavism or Normalization of Central Banks’ Monetary Policy

2019 ◽  
Vol 3 (342) ◽  
pp. 89-116
Author(s):  
Irena Pyka ◽  
Aleksandra Nocoń
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Central Banks ◽  
Interest Rate Risk ◽  
Interest Rate Policy ◽  
Rate Policy ◽  
Negative Interest Rate Policy

In the face of the global financial crisis, central banks have used unconventional monetary policy instruments. Firstly, they implemented the interest rate policy, lowering base interest rates to a very low (almost zero) level. However, in the following years they did not undertake normalizing activities. The macroeconomic environment required further initiatives. For the first time in history, central banks have adopted Negative Interest Rate Policy (NIRP). The main aim of the study is to explore the risk accompanying the negative interest rate policy, aiming at identifying channels and consequences of its impact on the economy. The study verifies the research hypothesis stating that the risk of negative interest rates, so far unrecognized in Theory of Interest Rate, is a consequence of low effectiveness of monetary policy normalization and may adopt systemic nature, by influencing – through different channels – the financial stability and growth dynamics of the modern world economy.

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