Affect Interest Rates Research Articles

EFFECTS OF SMALL BUSINESS ACCOUNTING BASES AND ACCOUNTANT SERVICE LEVELS ON LOAN OFFICER DECISIONS

This study examines effects of four combinations of accounting bases and service levels — GAAP and income tax bases, and audit and review service levels — on loan officers' decisions, both separately and in interaction. It examines effects on loan decisions and perceptions of interest rates, default risk, confidence, and usefulness. The interaction of accounting basis and service level significantly affects perceived confidence but does not affect other decisions. Accounting basis and service level separately affect interest rates, default risk, and report usefulness, but do not affect the loan decision.

Why deficit news affects interest rates

This article provides evidence on the relationship between budget deficits and interest rates. Wachtel and Young have demonstrated that announcements of larger deficits have raised interest rates. They offered three explanations for this: Agents expected larger deficits to crowd out private spending and raise real rates; they expected, according to the neo-Ricardian model, that government spending increases would raise interest rates; or they expected larger deficits to be monetized and cause inflation. Here evidence from exchange rates and government spending changes is used to demonstrate that financial markets expected deficits do crowd out investment and net exports, raising real interest rates and the dollar.

On the Possibility of Price Decreasing Bubbles

It is often argued that a rational bubble, because it is positive, must increase the price of a stock. This argument is not valid in general: as soon as bubbles affect interest rates, the fundamental value of a stock depends on whether or not a bubble is present. The existence of a rational bubble then might, by raising equilibrium interest rates, depress the fundamental to such an extent that the sum of the positive bubble and decreased fundamental falls short of the fundamental, no-bubble price. Under conditions made precise below, there can therefore be price decreasing bubbles, and an asset can be undervalued.

Anticipated Federal Budget Deficits, Monetary Policy and the Rate of Interest

In recent years, a number of studies have attempted to investigate the impact of federal budget deficits on the rate of interest. Studies by Evans [6; 7], Makin [13], Hoelscher [9; 10], Barth, Iden and Russek [2; 3], Dwyer [5], Cebula [4], among others, have analyzed this issue but have provided conflicting evidence on the impact of federal budget deficits on the rate of interest. This is due in part to differences in methodology, definition of budget deficit variables, sample period, and estimation techniques. Hoelscher [10], Barth, Iden, and Russek [2; 3], Feldstein and Eckstein [8] find that budget deficits affect interest rates, but Evans [6; 7], Makin [13], and Hoelscher [9], conclude that budget deficits have no significant effect on interest rates. The contributions of this paper are: first, to directly introduce, within the framework of rational expectations models, federal budget deficit and monetary variables. This technique of analyzing the impact of deficits on interest rates may shed new light on this important issue which has not appeared in the literature. Second, the deficit measure employed in this study is designed in a manner that it avoids being contaminated by changes in expenditures and tax receipts due to the automatic stabilizing aspects of fiscal policy. Third, it is explicitly recognized that monetary and fiscal policies jointly interact in determining interest rates. Finally, the policy process determining the interest rate is tested for stability over time. This is important in light of Evans's [6] work, who finds various episodes in the U.S. history when budget deficits increased for a few years but had no appreciable impact on interest rates. The intention in this paper is to investigate the reaction of economic agents who find that budget deficits may persist for a longer time in the future.

Ricardo and Keynes on war finance

Ricardo and Keynes were remarkably close on many of the practical problems of war finance, despite their sharp and somewhat polemical difference on the question of whether an over-issue of currency or an excessive aggregate demand was exclusively the cause of inflation. During a war, when both the quantity of money and aggregate demand are excessive, they would both predict inflation. And, they stood together in the fight against the evils of inflation, because it caused a violent and unjust redistribution of income and wealth. They both accepted the obvious fact that wartime expenditures would crowd out private spending, but they denied that this would necessarily affect interest rates.

Budget deficits and interest rates in the United States

In this paper, an attempt has been made to reexamine the effect of budget deficits in the United States on interest rates. Unlike the previous studies which use only one definition of the dependent variable, we have used all three, namely, the nominal and the ex-post and the ex-ante real interest rate. Further, unlike previous studies, we considered both short-term and long-term interest rates. Our results provide absolutely no support for the proposition that federal deficits affect interest rates and thus contradict the recent findings by Cebula (1987) and Kolluri and Giannaros (1987). Finally, the paper provides some further support for the ‘inverted’ Fisher hypothesis proposed by Carmichael and Stebbing (1983).

Interest Rates and Economic Announcements

Gerald P. Dwyer Jr. and R. W. Hafer investigate whether announcements of government statistics systematically affect interest rates. To analyze the effects of such announcements, the authors examine the behavior of changes in the 3-month Treasury bill rate and the 30-year government bond rate around days on which government statistics are first made public.

Interest Rates and the Subjective Probability Distribution of Inflation Forecasts

The interst rate effects of the first four moments of the subjective probability distribution of inflation forecasts from the ASA-NBER survey are examined over the period 1968:4-1985:4. Using Tre asury bill yields as the nominal rate variable in the context of a re duced form Fisher equation, the authors find that inflation uncertain ty, as measured by the average variance of the probability distributi ons of inflation forecasts, to be insignificant. However, the average skewness and kurtosis variables which result from these probability distributions do significantly affect interest rates. They interpret these effects as accounting for the level of risk or uncertainty abou t future inflation. Copyright 1988 by Ohio State University Press.

Monetary Announcements and Interest Rate Responses

There is much evidence available showing that interest rates rise in response to unexpectedly large money stock (M1) announcements [3;6; 12; 14; 15; 16]. Some studies that have examined the interest rate response to monetary base announcements, however, have failed to isolate any systematic response to these surprises [4;5]. Such a finding warrants further consideration. Many believe that the monetary base is a good summary measure of monetary policy. Others argue that the monetary base is an accurate indicator of future inflation [7]. Since both a policy anticipation effect and an inflationary expectation effect have been offered to explain why money stock announcements affect interest rates, it would appear that monetary base announcements should also matter. The nonexistence of a monetary base announcement effect is especially difficult to understand since the monetary base, for a given statement week, is announced one week prior to the money stock number for that same week. This suggests the financial markets may be inefficient in processing information. An important aim of the present paper is to consider the information content of monetary base announcements. The first section of this paper argues that the monetary base may not be the pure monetary policy indicator some suggest. In particular, under a lagged reserve accounting system, many of the subsequent innovations in the base can be foretold by earlier money stock announcements. Contrary to suggestions of earlier analysis, the money stock announcements are likely to lead monetary base announcements. Also, of importance is the recognition that the monetary base includes currency and discount window borrowings. Since the Fed does not try to exercise short-term control over either of these elements of the base, their movements will not reflect policy actions. The analysis of monetary base announcements suggests that Federal Reserve announcements of discount window borrowing, however, may carry important information to financial markets, over and above the money supply announcement. While discount window borrowings are included in the monetary base, it is felt that this element alone carries important information to the financial community. The third section of this paper investigates whether or not the unexpected element of these borrowing announcements has an

Financing health development projects: Some macro-economic considerations

The paper briefly discusses the importance of macro-economic policy in health sector financing. The ways in which monetary and fiscal policy (macro-economic policy) affect interest rates, price levels and aggregate output are presented. The main portion of the paper considers a variety of methods for public financing of health and development projects. These approaches are analyzed in light of distributional and efficiency considerations. One way of increasing health sector resources is through reallocation from other sectors of the economy. The potential for redistribution from the defense to the health service industry is briefly considered.

Preface

Previous articleNext article FreePrefaceMartin S. FeldsteinMartin S. Feldstein Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by NBER Macroeconomics Annual Volume 11986 Sponsored by the National Bureau of Economic Research (NBER) Article DOIhttps://doi.org/10.1086/654009 Views: 27 Citations: 4Citations are reported from Crossref Copyright 1986 The National Bureau of Economic Research and The Massachusetts Institute of TechnologyPDF download Crossref reports the following articles citing this article:Eduard Van Gelderen, Ashby H. B. Monk Knowledge Management in Asset Management, SSRN Electronic Journal (Jan 2015).https://doi.org/10.2139/ssrn.2642467Salvatore Dell'Erba, , Sergio Sola, Does Fiscal Policy Affect Interest Rates? Evidence from a Factor-Augmented Panel, IMF Working Papers 13, no.159159 (Jan 2013): 1.https://doi.org/10.5089/9781484394502.001Floro Ernesto Caroleo, Francesco Pastore Structural Change and Labour Reallocation Across Regions: A Review of the Literature, (Feb 2010): 17–47.https://doi.org/10.1007/978-3-7908-2164-2_2Ashby H. B. Monk Pension Buyouts: What Can We Learn from the UK Experience?, SSRN Electronic Journal (Jan 2009).https://doi.org/10.2139/ssrn.1494436

Market Response to the Weekly Money Supply Announcements in the 1970s

ABSTRACTThe hypothesis that the weekly announcement of the money supply affects interest rates is examined. The announcement effect is interpreted as a policy anticipation effect. That is, an unanticipated increase in the money supply leads to an increase in interest rates in anticipation of future tightening by the Federal Reserve. Estimates of this effect with proxies for the unanticipated change constructed from a survey of money supply forecasts and an ARIMA model indicate that: (a) financial markets respond very quickly to the announcement; and (b) the response was largest when policymakers emphasized the importance of the monetary aggregates.

WHO PUTS THE INFLATION PREMIUM INTO NOMINAL INTEREST RATES?

For expectations of price inflation to affect interest rates, they must affect the behavior of borrowers and lenders or both. This paper analyzes the emergence of the inflation premium in long-term interest rates as the explicit result of borrowers' and lenders' behavior in the bond market in response to price expectations. The object of this analysis is not only to estimate the magnitude of the inflation premium due to this portfolio behavior but also to evaluate the respective contributions to it of borrowers' and lenders' responses. The empirical results presented in this paper indicate that both borrowers' and lenders' portfolio behavior play an important role in the relationship between interest rates and inflation expectations. Estimation results for U.S. data provide evidence that, all other things equal, nonfinancial business corporations increase their supply (net issuance)of bonds in response to an increase in expected inflation; these results mirror the bond investors' responses found by the author in a previous paper. Partial equilibrium experiments based on the combined model of bond supply and bond demand indicate that, all other things equal, the port-folio responses to expected price inflation by borrowers and lenders together increase the bond yield by 2/3%, and modestly decrease the net quantity of bonds issued and purchased, in response to a 1% increase in expected inflation. This result follows as the consequence of a slightly greater response by lenders than by borrowers.

The Influence of Debt on the Relations between Crown and Aristocracy in Seventeenth-Century Castile

T HE growth of aristocratic indebtedness in Western Europe during the sixteenth and seventeenth centuries has been singled out by historians as one of the most important symptoms of the progressive decline of the traditional feudal nobility. Pierre Goubert has recently emphasized the significance of the topic by observing that in seventeenth-century Beauvais no fact concerning the social order is more outstanding and more general than this indebtedness of the and the resulting passage of noble properties into the hands of bourgeois creditors.2 Similar conclusions have been reached from studies of the English nobility, but in this case the tendency to equate noble indebtedness with the decline of the nobility in general has been challenged. As some historians have shown, the existence of debts did not necessarily denote impoverishment and could even be indicative of financial strength.3 Indeed, the eighteenth-century peerage, while more indebted than its seventeenth-century counterpart, was also financially more secure.4 Although the importance of aristocratic indebtedness as a historical topic stems primarily from the interpretative mould into which it has been cast, the debate over the Elizabethan peerage illustrates how difficult it is to determine the exact relationship between high levels of debt and the supposed decadence of the nobility. It would appear that the outcome of indebtedness varied according to regional and chronological circumstances. Among the variables producing a multiplicity of different situations were the types of credit instruments available, the laws affecting interest rates and property ownership, the attitudes adopted by

Interest Rates and Prices in the Long Run: A Study of the Gibson Paradox

This is a study of the relationship between commodity price inflation and interest rates. One of the chief avenues through which inflation has been posited to affect interest rates is through the effect of actual inflation on anticipated inflation, which is then taken to help determine the nominal rate of interest. For this reason, the manner in which price anticipations are formed is a topic that cannot help but occupy an important role in a study such as this. Although many papers have been written on the topic,l no single explanation of the relationship between inflation and interest commands wide acceptance. As proof of this statement, it is sufficient to note that the name that Keynes gave to that relationship-the Gibson paradox-has stuck. Keynes's claim was that over long periods of time in the United States, England, and other countries, interest rates had been highly correlated with the aggregate level of commodity prices. Keynes [20] named this empirical regularity the Gibson paradox2 since it seemed

THE REAL-BALANCE EFFECT: ASPECTS AND EVIDENCE*

POSTKEYNESLAN MONETARY THEORY has explained the of changes in the real money supply in three basic ways. They may be termed the effect (generally called the real-balance effect), the portfolio-balance effect, and the Cambridge effect. According to the net-wealth effect, an increase in the money supply increases the assets of the private sector but not its liabilities, since fiat money is a liability of the government. As a result of this increase in wealth, private spending increases. Since government spending is assumed constant, total spending for goods and services increases as a result of the increase in the net wealth of the private sector. The result of the increase in net wealth, assuming full employment, is an equiproportional rise in the price level.' According to the portfolio effect, variations in an area's stock of money affect expenditures when real balances bear a proportion to the value of the portfolio which is different from the proportion desired by money holders. Rearrangement of portfolios takes place through additional spending or additional accumulation, processes which drive prices either up or down and restore the actual value of money holdings to the desired value. Finally, the Cambridge views individual decisions about money holdings as depending upon yearly income. If money holdings represent a fraction of yearly income that is larger (say) than people desire, they remedy the situation by increasing their rate of expenditure, causing an increase in the price level. It is our contention that the only realistic way in which to make the real-balance (RBE) a useful concept with which to analyze the workings of the economy is to define it as the set of all changes in spending behavior resulting from a change in the real stock of money and to include, as aspects of the RBE, the three effects mentioned above. Moreover, there should be a recognition of the fact that excess supply of money may imply an excess demand for financial instruments as well as for commodities. In other words, an overall view of the of changes in real balances must admit that changes in the money supply affect interest rates, investment, and incomes, as in the Keynes effect. Hence, we also include this as the indirect aspect of the RBE. In our view, an increase in the real money supply increases spending for both consumption goods and financial instruments, with the ultimate increase in spending stemming not only from whatever wealth argument enters the consumption function, but also from whatever extra income is generated through increased investment and lower interest rates.

Money, Interest Rates, Prices, and Output

The money supply and commercial bank credit have risen rapidly since January. In recent months interest rates have also risen markedly. These developments might appear to be a paradox, but a close examination of economic relationships indicates that they can be interpreted in a way which is entirely consistent with economic theory. The developments in financial markets in the past two years have given rise to considerable question concerning the underlying forces affecting interest rates. This note traces these events and relates them to one frequently cited theory.