Interest Rate Cuts Research Articles

Can cryptocurrencies be a hedging tool? Evidence from the Turkish stock market

ABSTRACT The study examines the hedge properties of BTC, ETH, and BNB for the Istanbul Stock Exchange 100 Index (XU100). Investors who add cryptocurrencies to XU100-only portfolios reduce risks by 12.10% to 18.60%. Results show that during global events like COVID-19 and the Russia-Ukraine war, the hedge effectiveness of cryptocurrencies is low. However, during Turkey-specific events such as the Pastor Brunson currency shock, the swap crisis, the dismissal of Central Bank Governor Naci Ağbal, irrational interest rate cuts, the announcement of the currency-protected deposit system, and the February 6 earthquake, the hedging properties of cryptocurrencies against the XU100 index significantly improve.

Consumption tax cuts vs stimulus payments

Recent work shows that in macroeconomic models with non-Ricardian consumer behavior, uniform transfers are equivalent to interest rate cuts. That is, policymakers can use stimulus payments to substitute for conventional monetary policy when, say, the zero lower bound on short-term rates binds. We argue that in the same class of models, temporarily reducing consumption taxes delivers more stimulus than transfers — at the same cost to the taxpayer. Consumption tax cuts activate both income and substitution channels and prompt a strong response from all consumers across the wealth distribution. Simulating these policies in a quantitative heterogeneous agent New Keynesian model, we find output expands twice as much.

Present Bias Amplifies the Household Balance-Sheet Channels of Macroeconomic Policy

Abstract We study the effect of monetary and fiscal policy in a heterogeneous-agent model where households have present-biased time preferences and naive beliefs. The model features a liquid asset and illiquid home equity, which households can use as collateral for borrowing. Because present bias substantially increases households’ marginal propensity to consume (MPC), present bias increases the effect of fiscal policy. Present bias also amplifies the effect of monetary policy, but at the same time, slows down the speed of monetary transmission. Interest rate cuts incentivize households to conduct cash-out refinances, which become targeted liquidity injections to high-MPC households. Present bias also introduces a motive for households to procrastinate refinancing their mortgages, which slows down the speed with which this monetary channel operates.

Negative Interest Rate Policies: A Survey

This article surveys studies on the impact of central bank negative interest rate policies (NIRP). It reviews recent research on the effects of NIRP on financial markets, banks, households, firms, and the macroeconomy. Overall, policy rate cuts when interest rates are negative propagated along the yield curve, with the first policy cut below zero contributing significantly to the fall in longer-term yields. Lending and deposit rates also decreased following the adoption of NIRP. Based on the experience so far, bank lending volumes rose, and bank profits did not significantly deteriorate, although there was considerable heterogeneity in the effects. The impact of NIRP on inflation and output appears to have been comparable to that of conventional interest rate cuts.

The Active Versus Passive Investing Debate: Evidence From the 2018-2023 Market Cycle

The paper investigates the research question: Which investment management style, active or passive, produced better risk-adjusted performance from January 1, 2018, to December 31, 2023 (Prondzinski, 2010)? The comprehensive time period was further subdivided into two periods: January 2020 – May 2023, the Pandemic period, and March 2022 – December 2023, the interest rate hiking period without any interest rate cuts. The study tested twenty-seven hypotheses derived from this research question for the specified periods addressed. The study, consisting of 27 statistical tests, found that on a risk-adjusted basis, the Sharpe ratios of active indices (proxies for active management) significantly exceeded the passive indices (proxies for passive management) in nine of the periods tested) (Prondzinski, 2010).

Who Are the Hand-to-Mouth?

Abstract Many households hold little wealth. In standard precautionary savings models, these households should not only display higher marginal propensities to consume (MPCs) but also higher future consumption growth. In contrast, we see from the Panel Study of Income Dynamics that such “hand-to-mouth” households do not display higher growth in spending. They also exhibit greater volatility of spending and adjust their spending to a greater extent through the number of categories consumed. Consistent with a role for preference heterogeneity, the panel data show that it is persistent differences across households, not current assets, that predict low consumption growth and other spending differences for the hand-to-mouth households. To identify the extent of preference heterogeneity, we consider the model of Kaplan and Violante with both liquid and illiquid assets, but allow heterogeneity in preferences. To match the data, many poor hand-to-mouth must be relatively impatient and have a high inter-temporal elasticity of substitution. The model shows that preferences predominantly explain the higher MPCs for low-asset households. Preference heterogeneity notably increases the spending impact of fiscal transfers, but only if targeted, while reducing that from interest rate cuts.

China in 2023

In 2023, in an effort to revive the sluggish economy after the COVID-19 pandemic, the Chinese government implemented a variety of stimulus measures, such as interest rate cuts, tax cuts for small and medium-sized enterprises, and the issuance of local government bonds. But recovery has been challenging owing to export controls by the United States, lackluster domestic demand, high youth unemployment, and a real estate bubble. Externally, to respond to stronger cooperation between the United States and its allies in Western Europe and Asia, China actively pursued diplomatic activities with its traditional allies, such as Russia, and developing countries.

Profitability Analysis of Markets Traded on Borsa Istanbul

Supermarkets significantly increased product prices in response to the sudden and sharp rise in the exchange rate in July 2018. A similar situation unfolded in 2021 when interest rates dropped, and the exchange rate experienced a steep increase. The surge in demand for foreign currency and subsequent interest rate cuts led to an escalation in the exchange rate. Consequently, production costs rose due to inflated raw material prices, resulting in higher product prices. Additionally, supermarkets allegedly engaged in cartel-like behavior, purposely withholding products from sale, further contributing to price hikes between 2021 and 2022. This study evaluates whether supermarkets garnered substantial profits during the period. Financial statement data from 2018 to 2022 was analyzed using vertical, trend, and ratio analyses to assess the financial position and profitability of five companies listed on Borsa Istanbul. Throughout the 2018-2022 period, except for 2022, BIM demonstrated the highest return on assets ratio. The return on assets ratios for 2022 and 2021 exhibited an upward trend, indicating an increase in profitability during 2022. SOK recorded the highest return on equity ratio in the 2018-2022 period, while CarrefourSA reported the lowest. Furthermore, the companies witnessed notable growth in revenues, gross sales profitability, and net profitability in 2022, surpassing previous years. This suggests they earned more profit by increasing prices at a greater rate than their costs in 2022. The operating profitability of the companies also experienced an upswing during this period. BIM held the largest share of operating profit in revenues in 2022, while CarrefourSA possessed the smallest share. In terms of net profitability, the companies fared better in 2022 compared to 2021, with net profitability exhibiting a more substantial increase during 2022.

The impact of monetary policy interventions on banking sector stocks: an empirical investigation of the COVID-19 crisis

The enduring impact of the COVID-19 crisis on the financial sector is undeniable, persisting far beyond the eventual waning of the pandemic. This research examines central bank interventions during the pandemic, using a quantitative event study approach over a five-day window to analyse the impact of 188 monetary policy announcements on banking stocks in China, the U.S., and Europe. Our results demonstrate how monetary policy announcements targeting different economic mechanisms have produced a diverse market reaction throughout the COVID-19 pandemic. Namely, cuts in interest rates and the maintenance of a low interest rate environment by the Federal Reserve resulted in negative abnormal returns in the U.S.A., while short-term announcements surrounding intra-day credit and liquidity provisions boosted banking sector stock prices. In Europe, a muted reaction by the banking sector was observed, with negative abnormal returns observed in response to the ECB’s 2% inflation objectives. Finally, banking stocks in China responded strongly and positively to foreign currency and exchange-related announcements by the People’s Bank of China. The results and insights from this analysis can thus inform preparations made by policymakers, governments, and financial market stakeholders in the event of future waves of COVID-19, or further extreme societal disruptions.

Trends and Development of Fiscal and Monetary Policies of G7 Countries During the Post-Pandemic Era

This study aims to provide a comprehensive analysis of the fiscal and monetary policies enacted by the G7 countries in the post-COVID-19 era, and to investigate their impact on economic recovery. This research is set amid the global disruption during the COVID-19 pandemic, which compelled governments around the world to enact unprecedented measures to stimulate economic activity and prevent financial collapse. The objective of our research analysis is to assess the efficacy of these policies in promoting economic recovery while considering the diverse strategies adopted across the G7 nations. The primary research content revolves around a comparative evaluation of monetary strategies—such as interest rate cuts and quantitative easing—and fiscal measures—such as direct payments, loan guarantees, and tax deferments. This study primarily relies on data sourced from major global agencies and central banks, which serve to quantify the effects of these policies on key economic indicators, such as GDP growth, employment rates, and inflation. The study also takes into account recent forecasts from the IMF and OECD, offering a nuanced view of the prospects for economic recovery among the G7 countries. This analysis can be useful in providing a deeper understanding of the complexities involved in policymaking at a macroeconomic level. The analysis identifies notable disparities in the economic recovery rates across G7 countries, which can be attributed to the variations in the scale, scope, and nature of their fiscal and monetary interventions. Consequently, the study offers valuable insights into the requisite policy calibrations necessary for more targeted and effective economic stimulation.

The Trend and Spillover Effect of Fed's Interest Increase Policy

Since 2022, the Federal Reserve has started a new round of rapid rate increase process due to the continuous rise in inflation. However, due to the combined effects of the epidemic and the conflict between Russia and Ukraine, the impact of the current Fed rate hike on the global economy and finance is different from previous cycles. Based on the recent stance of the Federal Reserve, the market generally judges that the current round of interest rate increase cycle of the Federal Reserve has come to an end. This paper discusses when and how the Federal Reserve will cut interest rates. At the same time, relevant suggestions are put forward on how to prevent the spillover effect of the Fed's interest rate hike. Through way of qualitative analysis, the author believes in how to balance the three goals of inflation elimination, employment stabilization and financial stability, or the main line of the monetary policy decision of the Federal Reserve in the future.

The Federal Reserve's Interest Rate Increases and Their Effect on the U.S. and Global Economies under the Covid-19 Pandemic

This paper delves into the successive Fed rate hikes that began in March 2022 and their far-reaching impact on the domestic and global economy. The paper primarily examines the reasons behind these rate hikes, focusing on their response to the problems caused by the COVID-19 pandemic, particularly unemployment and inflation trends. The pandemic triggered widespread lockdowns, leading to severe supply chain disruptions and economic downturns. During this period, unemployment rates rose sharply and reached historic levels. Central banks worldwide had adopted loose monetary policies to stabilize economies in the short term. However, this also raised the risk of persistent inflation. Fiscal stimulus, intermittent interest rate cuts, and a raft of bailouts, such as the CARES Act, have added complexity to the economic landscape, affecting various sectors and necessitating higher interest rates to restore pre-pandemic stability. Disruptions in global supply chains played a key role in stoking inflationary pressures, eroding consumer purchasing powers, and highlighting the urgency for the US Federal Reserve to intervene by adjusting interest rates. Assessing the impact of these rate hikes on stocks shows a resilient market that remained optimistic about the U.S. economic recovery. In addition, the study outlines the impact of these rate hikes on foreign exchange markets, international capital flows, emerging markets, trade dynamics, and global competitiveness.

The effect of cutting interest rates on corporate investments: A real options model

AbstractWe propose a real options model with regime shifts to investigate the effect of cutting interest rates on corporate investments when a financial crisis occurs. Cutting interest rates would lower the investment project's hurdle rate. The reduction in hurdle rate is positively related to the magnitude of interest rate cuts and the persistence of the financial crisis. The hurdle rate becomes lower in the financial crisis state because the reduction in interest rate would lower the cost of capital and the opportunity cost of immediate investment. In the numerical analysis of this study, we show that the change in the opportunity cost accounts for most of the change in the hurdle rate. Upon taking into consideration the firm's financing constraints, we find that cutting interest rates accelerates investments for firms with high liquidity. However, for firms with low liquidity, the optimal investment threshold is not affected by the variation in interest rates. Instead, the investments of low‐liquidity firms are affected by the change in the friction of credit supply.

Government policies and manufacturing production during the COVID-19 pandemic

This paper evaluates the impact of government support and containment measures on the manufacturing production cycle (MPC) of 39 countries during the COVID-19 pandemic. To the best of our knowledge, the effects of these variables on the MPC have not been studied. To obtain reliable evidence, we resort to two complementary econometric techniques: the Arellano-Bond Generalized Method of Moments (GMMs) and the Arellano-Bover GMMs. The evidence is consistent across econometric methods in showing that: 1) Closure and containment measures have been recessionary, 2) Income support measures and interest rate cuts have been effective in raising manufacturing production, and 3) Real exchange rate depreciations do not stimulate (and could even discourage) manufacturing production, presumably because they make imported intermediate inputs more expensive. Therefore, raising consumption through higher income and investment through lower interest rates can alleviate the recessionary effects of closure and containment policies, whereas depreciating the currency may not be effective to boost manufacturing production amid falling world trade and disrupted global supply chains, which could interact with a weaker currency to make imported intermediate inputs even more costly.

Heterogeneous international monetary transmissions: The role of inflation

In the context of the trilemma hypothesis, we document heterogeneous international monetary transmissions, emphasizing the essential role of inflation. Periphery countries' monetary policy autonomy is subject to their inflation. Facing an interest rate hike of a center country, periphery countries are more willing to follow when their inflation levels are high. Following an interest rate hike helps ease periphery countries' domestic inflation pressure. In contrast, those countries with low inflation are more inclined to follow the center country's interest rate cut. We further confirm that periphery countries' monetary policy autonomy is enhanced by capital controls and flexible exchange regimes, consistent with the trilemma hypothesis.

Dynamic banking with non-maturing deposits

The majority of bank liabilities are deposits typically not withdrawn for extended periods. We propose a dynamic model of banks in which depositors forecast banks' leverage and default decisions, and withdraw optimally by trading off current against future liquidity needs. Endogenous deposit maturity creates a time-varying dilution problem that has major effects on bank dynamics. Interest rate cuts produce delayed increases in bank risk which are stronger in low rate regimes. Deposit insurance can exacerbate the deposit dilution and amplify the increase in bank risk.

The Development Path for Real Estate of China During the Normalization of the COVID-19

The COVID-19 pandemic swept the world in early 2020, which strongly inhibited and severely affected the real estate industry of China. In terms of information retrieving, integrating relevant data and implementation of SWOT and PEST analysis, this paper explores the development path of it in the post-epidemic era. According to the analysis, under the normalization of the pandemic, the market has several strengths and weaknesses. To be specific, strengths (e.g., the removal of the house purchase quota policies and burgeoning demand for housing) and weaknesses (e.g., blocked corporate capital chains and restricted offline sales) are clearly demonstrated. Meanwhile, opportunities and threats are also existed for this market. For instance, opportunities include LPR interest rate cuts and deposit reserve ratio reductions, and threats include uncertain outbreaks of pandemic and changing consuming attitudes of the millennial generation. In order to stabilize the real estate market, the government should keep implementing a series of macro-control and monetary policies. Additionally, real estate companies should change the design of house patterns, focus on the development of green and intelligent housing products, and cater to consumers’ demand for new housing types. Under the premise of regular pandemic prevention and control, companies should also actively create an "online + offline" sales model to reduce the constraints of the pandemic. These results shed light on guiding further exploration of future development direction for the market.

Analysis of Overmacht Credit Agreements During Pandemic (Case Study of Loss Claims Rejections By Judges)

<span>The purpose of this research is to identify and analyze Covid-19 as a form of comparative advantage and the consequences of the advantage method in loan agreements and loan termination policies due to the Covid-19 pandemic. The research method is norm-law. It is a legal research method that examines and studies the provisions of legislation as a basis for subsequent analysis of the issues discussed. The research uses primary and secondary legal material for analysis through the study of relevant documents and literature. The analysis is a qualitative analysis that addresses the question in question. According to the research, Covid-19 is an unnatural disaster and thus can be classified as a measure of superiority. As a priority relationship, the laws governing the spread of Covid-19 result in a priority relationship with the loan agreement, which means that the debtor must continue to meet his obligations to the debtor even after Covid-19 is over. When it was implemented following POJK 11/2020, the debtor obtained credit relief through restructuring in the form of interest rate cuts, extension of maturity, reduction of funds owed, and interest reduction in arrears according to the restructuring table issued by the bank. After verification and analysis by the bank, the affected debtor Covid- 19</span>

YENİLENEBİLİR ENERJİ YATIRIMLARININ ARTTIRILMASINA YÖNELİK OPTİMAL POLİTİKALARIN BELİRLENMESİ: TÜRKİYE ÜZERİNE DEMATEL YÖNTEMİYLE BİR ANALİZ

Yenilenebilir enerji kaynaklarının birçok avantajı olmasına rağmen kullanılabilmesi için başlangıç maliyeti oldukça yüksektir. Öncelikle tasarımı, inşası ve işletilmesi için çok donanımlı ve kalifiye işgücüne ihtiyaç duyulmaktadır. Belirtilen bu hususlar da yenilenebilir enerji projelerinin gelişiminin önünde engel teşkil etmektedir. Dolayısıyla, temiz enerji projelerinin gelişimi için doğru politikaların belirlenmesi oldukça önemlidir. Bu bağlamda, farklı kriter setleri dikkate alınarak gerçekleştirilen yeni bir çalışmaya ihtiyaç duyulmaktadır. Bu çalışmanın amacı Türkiye’deki yenilenebilir enerji projelerinin arttırılması için gerekli olan en uygun stratejinin belirlenmesidir. Bu bağlamda, ilk olarak, geniş kapsamlı bir literatür taraması yapılmış ve beş farklı kriter tespit edilmiştir. Daha sonra, DEMATEL yöntemiyle bir analiz gerçekleştirilmiş ve en optimal stratejinin tespit edilmiştir. Bu çalışmanın literatüre en büyük katkısı ülkelerin sürdürülebilir kalkınması için önem arz eden temiz enerji projelerinin geliştirilmesi için gerekli olan doğru politikaların belirlenmesidir. Sonuç olarak, faiz oranlarının düşürülmesi yenilenebilir enerji yatırımlarının arttırılmasında en fazla önem arz eden kriterdir. Araştırma ve geliştirme çalışmalarının arttırılması da bu bağlamda önem arz etmektedir. Öte yandan, bankacılık sisteminin etkin olması, kalifiye personel yetiştirilmesi ve vergi indirimi sağlanması daha düşük önem ağırlığına sahiptirler. Netice itibarıyla, politika yapıcıların faiz indirimine öncelik vermesi gerektiği belirlenmiştir. Faiz oranı indirimi sayesinde, yatırımcılar daha düşük maliyetle kredi kullanabilme imkanına sahip olmaktadır. Bu durum da bu projelerin karlılığının artmasına yardımcı olmaktadır. Bunun sonucunda da yatırımcılar bu alana yönelmede istekli olabilecektir.

The Response and Results of Countries to the Fed's Rate Hike

Many financial institutions including Europe and Japan remained healthy during the global financial crisis, with deposits guaranteed by the federal government. The surge in demand for money did not have any destabilizing effects on the banking system. In fact, bank deposits also increased during this period. However, the rise in demand for money did cause some problems for the paper money distribution business. Traditional models of money demand suggest that interest rate cuts and federal stimulus payments to households have played a role in explaining the increase in money holdings. This study estimates that these factors account for only about 20% of the observed increase in currency holdings. The rest of the rise was likely due to increased precautionary holdings by people worried about the liquidity or solvency of financial institutions and as a contingency measure. It is in line with the disproportionate increase in demand for large-denomination. These results shed light on guiding further exploration of interest rates.