real interest rate
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2022 ◽  
Vol 42 (1) ◽  
pp. 113-127
Author(s):  
Maria Isabel Busato

ABSTRACT These notes aim to revisit the debate, the model, the results, and main objections to the validity of the Ricardian Equivalence Theorem as presented in Barro (1974). It is intended to explore his thesis that tax and debt are equivalent and have no real effect on perceived wealth, demand, the real interest rate or on the economy. The thesis refers to the analysis of the ways of financing debt at a given level of government expenditure and does not address the effects of an expansion of this volume of spending, nor it specifically analyzes the effects of an increase in public debt due to a tax reduction policy. After this presentation, the thesis is debated, consolidating some of the premises that are necessary to validate it. The purpose of the paper is to explore the first round of debates on the theme, explaining the restrictions to which the Barro-Ricardo Theorem or the Ricardian Equivalence Theorem is subject, based on the publications by Barro (1976), Buchanan (1976) and Feldstein (1976), all of them within the ‘realm’ of economic orthodoxy. The final section presents some remarks and an analysis of Barro’s later work (1989 and 1996).


2021 ◽  
Vol 1 (3) ◽  
Author(s):  
Jean Jean Elia ◽  
Elena Toros ◽  
Chadia Sawaya ◽  
Mohamad Balouza

Lebanon is currently witnessing the most severe banking sector crisis in its history. Thus, nowadays, the demand for financial analyses in banks has increased to examine the financial distress and the potential impact of the macroeconomic factors. Consequently, this research studies bank distress in Lebanese Alpha banks and addresses the question of how the Lebanese major macroeconomic factors affect it. The researchers calculated the mean Altman Z”-scores for 10 Lebanese Alpha banks for the period 2009 – 2018 as an indicator for financial distress. Furthermore, they collected data regarding the chosen macroeconomic indicators for the same period from the World Bank Data. Consequently, the researchers developed a Regression Model and analyzed the model and a multicollinearity test. The calculated Altman Z"-scores showed that Lebanese Alpha banks were very likely to be financially distressed. Moreover, the results showed that there is a positive relationship between debt service, government expenditures, unemployment, and the real interest rate on one side and alpha banks’ high probability to become distressed on the other side. First, gathering data regarding the macroeconomic indicators was a hurdle as there were differences among the sources (Lebanese Ministry of Finance, BDL, Bloomberg, IMF, and World Bank). This is why the authors depended on the values published by the World Bank Data as a reliable source. Second, there is a lack of studies analyzing the relationship between the banking sector’s current crisis and the individual macroeconomic variables. However, this limitation also gives value to the results of this study. This research sheds light on the significance of the Altman Z"-score as an indicator for financial distress in Lebanese Alpha banks. Thus, a model can be developed based on the basic Altman model that fits for Lebanese banks. Moreover, banking authorities (BdL, ABL, and BCC) should impose yearly calculations of this score to detect probable future distress. The value of this study stems from it being one of the first studies in the Lebanese market examining the impact of macroeconomic factors on the Z”-scores of the Lebanese Alpha banks using the Multiple Regression Model.


2021 ◽  
Vol 2021 (072) ◽  
pp. 1-49
Author(s):  
Aditya Aladangady ◽  
◽  
Etienne Gagnon ◽  
Benjamin K. Johannsen ◽  
William B. Peterman ◽  
...  

We explore the long-run relationship between income risk, inequality, and the macroeconomy in an overlapping-generations model in which households face uncertain streams of labor income and returns on their savings. To manage those risks, households can apportion their savings to a bond, whose return is safe and identical across households, and a productive asset, whose return is uncertain and can differ persistently across households. We find that greater polarization in households’ labor income and returns on their savings generally accentuates households’ demand for risk-free assets and the compensation they require for bearing risk, leading to higher measured income and wealth inequality, a lower risk-free real interest rate, and higher risk premiums. These findings suggest that the factors behind the observed rise in inequality over the past few decades might have contributed to the observed fall in the risk-free real interest rate and widening gap between the risk-free real interest rate and the rate of return on capital. We also find that the magnitude of the decline in the risk-free real interest rate and offsetting rise in risk premiums depend importantly on the source of income polarization, with the effects being especially large when greater inequality is caused by increased dispersion in returns on risky assets. Thus, the macroeconomic implications not only depend on the amount of inequality, but also the source of this inequality.


2021 ◽  
Vol 4 (2) ◽  
pp. 77-85
Author(s):  
ZIA UR REHMAN ◽  
ASAD KHAN ◽  
SHER ALI KHAN ◽  
SHAH RAZA KHAN

Instruments of monetary and fiscal policy are beyond the control of the management but they do influence the short-term as well as long-term decision making of the firm. Empirical studies with respect to their effect on financing decisions of the firm are somewhat under researched particularly in the context of developing countries. The aim of the study was to analyse the effect of these instruments on the financing decisions of the non-financial firms listed on PSX for the period 2008-2015. Fixed effect model was used to analyse the effect of instruments of monetary policy and fiscal policy on the financing decisions of firms. Based on sample of 338 firms, the findings of the study revealed that instruments of monetary policy and fiscal policy do influence the financing decisions of the firm. M2, tax revenue and government debt has a significant effect on the debt ratio of listed firms whereas real interest rate is insignificantly related. Moreover, the relationship between real interest rate, M2 and tax revenue and debt ratio is negative whereas in case of government debt it is positive.


2021 ◽  
Vol 4 (4) ◽  
Author(s):  
Javier de Oña García Matres ◽  
Tuan Viet Le

This study investigates the impact of money supply on economic growth rate, inflation rate, exchange rate and real interest rate. We used a panel of 217 countries from 1960 to 2020 and four different models to address these questions. The empirical results support the quantity theory of money. In addition, the study found evidence for a negative relationship between real interest rate and inflation and between money supply and real interest rate. Finally, our results show that lagged money growth rate is positively correlated with GDP growth rate but money growth rate is negatively correlated with GDP growth rate.


Urban Science ◽  
2021 ◽  
Vol 5 (4) ◽  
pp. 77
Author(s):  
Chung Yim Yiu

There are substantial rebounds in house prices in many developed economies after the outbreak of COVID-19. It provides a special opportunity to test the real interest rate hypothesis empirically as a “synchronized” price rebound implies a common cause of house price hikes across the economies. This study conducts a panel regression analysis on five economies, namely Australia, Canada, European Union, New Zealand, the United Kingdom, and the United States of America, to test the hypothesis. The data range from 2017Q1 to 2021Q1. The results confirm that the real interest rate imposes a negative and significant effect on house price growth rate after controlling for economic growth factors, unemployment factors, and cross-country fixed effects. The empirical result of the five housing markets shows that a 1% fall in the real interest rate caused a 1.5% increase in house prices, ceteris paribus, in this period. It also provides casual evidence refuting the economic growth hypothesis and the migrant hypothesis in New Zealand. The results provide far-reaching practical implications on housing policy and on the ways forward to solve housing affordability problems.


Author(s):  
Mojeed Olanrewaju Saliu

This research work investigates the relationship between external macroeconomic shocks and stock price behavior in Nigeria. Variables such as exchange rate (EXR), US real interest rate (USRINTR), and world oil price (WOP) are adopted to capture external macroeconomic shocks while all share price index is used to proxy stock price. The research work uses Johansen cointegration and structural vector autoregressive model as the estimation method. Findings from the study confirm that no long-term co-movement exists between the stock price and the selected external shocks. Findings from the study equally show that both US real interest rate (USRINTR) and world oil price (WOP) are the major external shock predictors of the stock price in Nigeria.


2021 ◽  
pp. 5-23
Author(s):  
S. M. Drobyshevsky ◽  
P. V. Trunin ◽  
E. V. Sinelnikova-Muryleva ◽  
N. V. Makeeva ◽  
A. M. Grebenkina

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