scholarly journals Non-Linear Analysis of the Fisher Effect: In the Case of Japan

2017 ◽  
Vol 9 (11) ◽  
pp. 1
Author(s):  
Katsuhiro Sugita
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Error Correction ◽  
Fisher Effect ◽  
Interest Rate Policy ◽  
Vector Error Correction ◽  
Long Run ◽  
Nominal Interest Rates ◽  
Zero Interest Rate Policy ◽  
Rate Policy

The Fisher effect has been commonly analyzed to investigate the long-run relationship between nominal interest rates and expected inflation rate, though it is rarely successful in finding the cointegration relationship as the Fisher effect states. In this paper, a Bayesian Markov switching vector error correction model is applied to analyze non-linearity in the Fisher effect in the case of Japan. We find that the Fisher effect holds in one regime although it does not hold in another regime when the nominal interest rate is stable and does not respond against disequilibrium by the monetary policy such as the zero interest rate policy. This model reveals non-linearity in the error correction mechanism of the Fisher effect in Japan.

scholarly journals AN EMPIRICAL STUDY OF THE FISHER EFFECT AND THE DYNAMIC RELATION BETWEEN NOMINAL INTEREST RATE AND INFLATION IN SINGAPORE

2009 ◽  
Vol 54 (01) ◽  
pp. 75-88 ◽  
Author(s):  
KING FUEI LEE
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Inflation Rate ◽  
Nominal Interest Rate ◽  
Impulse Response Functions ◽  
Fisher Effect ◽  
Dynamic Relationship ◽  
Long Run ◽  
Price Puzzle ◽  
Nominal Interest Rates

The Fisher Effect postulated that real interest rate is constant, and that nominal interest rate and expected inflation move one-for-one together. This paper employs Johansen's method to investigate for the existence of a long-run Fisher effect in the Singapore economy over the period 1976 to 2006, and finds evidence of a positive relationship between nominal interest rate and inflation rate while rejecting the notion of a full Fisher Effect. The dynamic relationship between nominal interest rate and inflation rate is also examined from the error-correction models derived, and the analysis is extended to investigate the impulse response functions of inflation and nominal interest rates where we discover the presence of the Price Puzzle in the Singapore market.

scholarly journals An Investigation on the Monetary Policy and Short-term Interest Rates in Japan

2011 ◽  
Vol 1 (1) ◽  
pp. 64 ◽  
Author(s):  
Chikashi TSUJI
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Taylor Rule ◽  
Consumer Price Index ◽  
Call Rate ◽  
Interest Rate Policy ◽  
Zero Interest Rate Policy ◽  
The Us ◽  
Rate Policy

We explore the intertemporal linkage between call rate changes, consumer price index (CPI) changes, and real gross domestic product (GDP) changes in Japan based on the Taylor rule of monetary policy. In our analysis, we consider two sample periods, namely, the former is before zero-interest rate policy and the latter is after it. According to our empirical results, first, we find that the relations between call rate changes and GDP changes and those between call rate changes and CPI changes are weak before zero-interest rate policy. Second, we also find that after zero-interest rate policy, mutual intertemporal relations between call rate changes and GDP changes are seen as the US Taylor rule suggests, although the linkage between call rate changes and CPI changes is not seen. Hence after zero-interest rate policy, regarding call rates and GDP, the relations suggested by US Taylor rule are found in Japan.

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.

scholarly journals Revisiting the Dynamic Linkages of Treasury Bond Yields for the BRICS: A Forecasting Analysis

Forecasting ◽  
2020 ◽  
Vol 2 (2) ◽  
pp. 102-129
Author(s):  
Stelios Bekiros ◽  
Christos Avdoulas
Keyword(s):  
Interest Rates ◽  
Error Correction ◽  
Term Structure ◽  
Parameter Instability ◽  
Vector Error Correction ◽  
Brics Countries ◽  
Vector Error ◽  
Long Run ◽  
Out Of Sample ◽  
Dynamic Linkages

We examined the dynamic linkages among money market interest rates in the so-called “BRICS” countries (Brazil, Russia, India, China, and South Africa) by using weekly data of the overnight, one-, three-, and six- months, as well as of one year, Treasury bills rates covering the period from January 2005 to August 2019. A long-run relationship among interest rates was established by employing the Vector Error Correction modeling (VECM), which revealed the validation of the Expectation Hypothesis Theory (EH) of the term structure of interest rates, taking into account long-run deviations from equilibrium and inherent nonlinearities. We unveiled short-run dynamic adjustments for the term structure of the BRICS, subject to regime switches. We then used Markov Switching Vector Error Correction models (MS-VECM) to forecast them dynamically during an out-of-sample period of May 2016 through August 2019. The MSIH-VECM forecasts were found to be superior to the VECM approaches. The novelty of our paper is mainly due to the exploration of the possibility of parameter instability as a crucial factor, which might explain the rejection of the restricted version of the cointegration space, and on the dynamic out-of-sample forecasts of the term structure over a more recent time span in order to assess further the usefulness of our nonlinear MS-VECM characterization of the term structure, capturing the effects of the global and domestic financial crisis.

Implications of Central banks’ negative policy rates on financial stability

2018 ◽  
Vol 10 (2) ◽  
pp. 310-320
Author(s):  
Benjamin S. Kay
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Financial Stability ◽  
Global Economy ◽  
Content Type ◽  
Interest Rate Policy ◽  
Trade Offs ◽  
Negative Interest Rates ◽  
Rate Policy ◽  
Negative Interest Rate Policy

Purpose While central bankers have widely discussed the trade-offs of negative interest rates on monetary policy, the consequences of negative rates on financial stability are less well understood. The purpose of this paper is to examine the likely and possible financial stability consequences of a negative rates policy with particular focus on banks, short-term funding markets, foreign exchange markets, asset managers, pension funds and insurers. Design/methodology/approach It draws from international experience with negative interest rates to identify financial stability threats posed to any economy by negative interest rates, and it also highlights where the US experience is likely to differ. Findings In time, financial market threats and other logistical issues of a negative interest rate policy can be managed or overcome. Even cumulatively, these threats are likely to be small as long as the rates remain only modestly negative. However, if the rates remain negative for long periods or they become more sharply negative, the rewards of avoiding negative rates increase. Originality/value Does the negative interest rate policy directly or through these challenges of implementation present a substantial obstacle to achieving financial stability objectives? As policy rates go negative in a greater share of the global economy, the financial stability consequences remain poorly understood and under discussed.

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