Natural disasters and monetary policy: evidence from an augmented Taylor rule

Purpose The purpose of this paper is to examine the short-run monetary policy response to five different types of natural disasters (geophysical, meteorological, hydrological, climatological and biological) with respect to developed and developing countries, respectively. Design/methodology/approach An augmented Taylor rule monetary policy model is estimated using systems generalized method of moments panel estimation over the period 2000–2018 for a panel of 40 developed and 77 developing countries, respectively. Findings In the case of developed countries, the greatest nominal interest rate response originates from geophysical, meteorological, hydrological and climatological disasters, whereas for developing countries the nominal interest rate response is the greatest for geophysical and meteorological disasters. For both developed and developing countries, the results suggest the monetary authorities will pursue expansionary monetary policies in the short-run to lower nominal interest rates; however, the magnitude of the monetary response varies across the type of natural disaster. Originality/value First, unlike previous studies, which focused on a specific type of natural disaster, this study examines whether the short-run monetary policy response differs across the type of natural disaster. Second, in relation to previous studies, the analysis encompasses a much larger panel data set to include 117 countries differentiated between developed and developing countries.

Revolving cards: A financial analysis of the credit repayment and legal implications

The framework of this paper is credit card holding by users and consumers, more specifically, the so-called revolving cards. In most cases, the true interest rate applied to a credit is much higher than its nominal interest rate. Usually, this is due to the existence of some fees to be paid by the holder, and to the process of splitting the periods of interest. However, the contracted annual interest rate of revolving cards is very high which, together with the peculiar amortization system, gives rise to an excessive amount of interests. The objective of this paper is to describe and analyze, from a legal and financial point of view, the main characteristics of the credit repayment in revolving cards. We conclude that the complete amortization of the principal needs a long duration and the payment of a high amount of interests.

Inflation and innovation value: How inflation affects innovation and the value strategy across firms

This research analyzes the effects of inflation on R&D investments and innovation-driven growth. For this, an innovation-driven growth model was built in which firms invest own resources and resources from financial institutions. Credit costs depend on the interest rate charged by these institutions. In an inflation-targetingregime, the monetary authority adjusts the nominal interest rate in order to converge current inflation to the established target. It adjusts the interest rate of financial institutions, changing the opportunity cost of investments. As a result, rising inflation promotes a reduction in R&D investments demand, reducing the rate of technological progress. In the empirical exercise of the model, the estimated coefficient of elasticity of R&D investments is negatively affected by inflation.

Revolving cards: A financial analysis of the credit repayment and legal implications

The framework of this paper is credit card holding by users and consumers, more specifically, the so-called revolving cards. In most cases, the true interest rate applied to a credit is much higher than its nominal interest rate. Usually, this is due to the existence of some fees to be paid by the holder, and to the process of splitting the periods of interest. However, the contracted annual interest rate of revolving cards is very high which, together with the peculiar amortization system, gives rise to an excessive amount of interests. The objective of this paper is to describe and analyze, from a legal and financial point of view, the main characteristics of the credit repayment in revolving cards. We conclude that the complete amortization of the principal needs a long duration and the payment of a high amount of interests.

Nominal Interest Rate, Inflation Money and Market Link in Bangladesh: An Econometric Analysis

This paper pursues to establish a connection among the nominal interest rate, the money market, and the inflation rate in Bangladesh using monthly time series data from June 2005 to March 2019. Because some data are stationary at the level and others are stationary at the 1st difference, the ARDL model is applicable for checking the link. There is a strong positive short-term and long-term relationship between inflation and nominal interest rates, suggesting that Bangladeshi data support the Fisher hypothesis for that time. For this study, the T bill, the call money rate is used as a measure of the money market. The research indicates that regulators should concentrate on call money rates in short-term and T-bill and call money rates in the long-term to control Bangladesh's nominal interest rate.

THE GOVERNMENT SPENDING MULTIPLIER IN A MODEL WITH THE COST CHANNEL

This paper studies the government spending multiplier in the presence of the cost channel of the nominal interest rate. I find that the spending multiplier of normal times declines markedly when this channel is introduced. The rise in government spending leads to a rise in the nominal interest rate and, with the cost channel, to a rise in the marginal cost and inflation. In turn, this leads to a bigger rise in the nominal interest rate and the expected real interest rate, hence a lower multiplier, than in a model that abstracts from the cost channel. On the other hand, in a liquidity trap, the cost channel makes the spending multiplier larger. Therefore, by ignoring the cost channel, the spending multiplier is overestimated in normal times and underestimated during liquidity trap episodes. Since liquidity traps are rare, however, the spending multiplier is mostly lower than in previous estimates.

Are Consumers' Spending Decisions in Line With an Euler Equation?

Evaluating a new survey of German consumers, we test whether individual consumption spending decisions are formed according to an Euler equation model. We find that consumers are more likely to increase current spending if they plan to increase spending in the future and if they expect higher inflation. In the subsample of financially literate households, we find an additional negative effect of nominal interest rate expectations. The effects of macroeconomic expectations become stronger if consumers observed news on monetary policy or financial markets. These news effects are particularly pronounced for consumers who save and those with low inflation forecast accuracy.

Monetary policy special features in the context of low interest rates

Introduction. The paper considers a wide range of monetary policy rules: integral stabilization, NGDP targeting, price level targeting, raising the inflation target, introducing negative nominal interest rates etc. The author also considers discretionary policy used by central banks when the nominal rate is close to zero, such as dramatic preventive cut of the key interest rate and interventions in the open markets with the aim of cutting long-term interest rates. The relevance of this problem is supported by global long-term macroeconomic and demographic factors, such as the dynamics of oil prices and the aging of the population. The aim of the paper is to identify the most effective monetary policy rules in order to reduce the risk of a nominal interest rate falling to zero. Methods. Analysis of the background and the results of general equilibrium models modeling monetary policy is carried out. Analysis of the role of current global trends (based on statistics) in aggravating the problem of declining interest rates. Scientific novelty of the research. The author systematizes the conclusions of modern macroeconomic theory, which offers a number of monetary rules making it possible to reduce the likelihood of falling into the zero bound of interest rate. Results. The effectiveness of monetary rules such as targeting nominal GDP and price levels in preventing the nominal interest rate from falling to zero is shown, primarily due to more efficient public expectations management which is a weak point of discretionary intervention. Conclusions. Under the current global factors for many developed countries and some oil-exporters, the downward trend in nominal rates persists. Combined with slowdown in economic growth, such threat may have negative consequences for the Russian economy. In this case, it seems reasonable to stick to the inflation target above 2% per year and in the future to consider switching to targeting the price level or nominal GDP.