Global Interest Rates Research Articles

Nonresident holdings of domestic debt in Nigeria: Internal or external driven?

AbstractThis paper studies the drivers of nonresident holdings of local currency debt in Nigeria. Using data over 2007M1–2019M1, we show that, on average, global factors (global interest rates, oil prices) seem to carry more weight than domestic factors (treasury bills rate and domestic risk) in foreign portfolio investors’ decisions in Nigeria. Specifically, we show that foreign participation is, in the long run, positively correlated with oil prices and profitable rates of return on local‐currency instruments, but negatively correlated with exchange rate depreciation pressures. In the short run, oil prices, opportunity cost of funds and perception of Nigeria‐specific risks also play a role. These results highlight the volatile short‐term nature of such flows and call for a package of policy reforms to attract longer‐term direct investments.

Non-traditional monetary policies and their effects on the economy

The Bank of Japan has implemented bold monetary policy measures with the aim of achieving the inflation target of 2%. As a result, Japan’s economy has improved. However, as the rate of inflation increase is slow, interest rates have not been rising and financial institutions have expressed growing dissatisfaction. Low interest rates are not unique to Japan, but rather a global phenomenon. Although Japan’s past deflationary monetary policy has led to the decline in nominal growth rates, it cannot fully explain the low interest rates. Having analyzed the reasons behind global low interest rates, the reasons are not yet fully understood. Banks in Japan are dissatisfied with low interest rates in Japan. However, banks’ low profitability would be caused by the structural problem that they are accumulating more deposits than they can lend. Moreover, if interest rates were raised, this would lead to an economic downturn, which would not improve banks’ profitability. Because Japan’s economy has improved due to bold monetary easing, it is necessary to maintain the current expansive monetary policy to stimulate increases in prices and interest rates, and to conduct further monetary easing when necessary. Various options for monetary easing measures could be available; this includes the reduction of the interest rate applied to excess reserves.

Impact of Market Expectations on the U.S. Interest Rate Lift-Off in ASEAN-5 Financial System

During 2015–2016, the market has lowered its expectations on the pace and magnitude of U.S. interest rate lift-off, which should have reduced capital outflow and supported the ASEAN-5 financial markets. Yet, the ASEAN-5 financial markets have recorded mixed fortunes, possibly due to spikes in global risk (proxied by CBOE VIX index). Against the contrasting background of higher global risk and gradual interest rate lift-off, this paper investigates the impact of market expectations on U.S. interest rate on the ASEAN-5 financial markets. This paper concludes that both global risk and market expectations on interest rate lift-off affect the ASEAN-5 financial markets, whereby the negative effect of higher global risk dominates the positive effect of market expectations of gradual interest rate lift-off in the ASEAN-5 currencies and equity markets. However, it is the reverse in the ASEAN-5 sovereign bonds as the positive impact of market expectations of more gradual interest rate lift-off dominates the negative effect of higher global risk.

Scarcity of Safe Assets and Global Neutral Interest Rates

We quantitatively evaluate the role of supply and demand of safe assets in determining neutral interest rates. Using an empirical cross-country state-space model, we find that the net supply of sovereign safe assets available to the private sector in secondary markets is an important driver of neutral rates for 11 advanced economies in the period 1970–2018. We also find that the global accumulation of international reserves in sovereign safe assets since the 1990s (the global savings glut) lowered the net supply of these assets and, thus reduced neutral rates by up to 50 basis points in our sample.

Non-Resident Holdings of Domestic Debt in Nigeria

Foreign holdings of domestic debt instruments in Nigeria have been increasing. Using data over 2007M1-2019M1, we show that, on average, global factors (global interest rates, oil prices) seem to carry more weight than domestic factors (treasury bills rate and domestic risk) in foreign portfolio invetsors’ decisions in Nigeria. Specifically, we show that foreign participation is, in the long run, positively correlated with oil prices and profitable rates of return on local-currency instruments, but negatively correlated with exchange rate depreciation pressures. In the short run, oil prices, opportunity cost of funds and perception of Nigeria-specific risks also play a role. These results highlight the volatile short-term nature of such flows and call for a package of policy reforms to attract longer term direct investments.

The Global Financial Resource Curse

Since the late 1990s, the United States has received large capital flows from developing countries - a phenomenon known as the global saving glut - and experienced a productivity growth slowdown. Motivated by these facts, we provide a model connecting international financial integration and global productivity growth. The key feature is that the tradable sector is the engine of growth of the economy. Capital flows from developing countries to the United States boost demand for U.S. non-tradable goods, inducing a reallocation of U.S. economic activity from the tradable sector to the non-tradable one. In turn, lower profits in the tradable sector lead firms to cut back investment in innovation. Since innovation in the United States determines the evolution of the world technological frontier, the result is a drop in global productivity growth. This effect, which we dub the global financial resource curse, can help explain why the global saving glut has been accompanied by subdued investment and growth, in spite of low global interest rates.

Non-Resident Holdings of Domestic Debt in Nigeria: Internal or External Driven?

Foreign holdings of domestic debt instruments in Nigeria have been increasing. Using data over 2007M1-2019M1, we show that, on average, global factors (global interest rates, oil prices) seem to carry more weight than domestic factors (treasury bills rate and domestic risk) in foreign portfolio invetsors' decisions in Nigeria. Specifically, we show that foreign participation is, in the long run, positively correlated with oil prices and profitable rates of return on local-currency instruments, but negatively correlated with exchange rate depreciation pressures. In the short run, oil prices, opportunity cost of funds and perception of Nigeria-specific risks also play a role. These results highlight the volatile short-term nature of such flows and call for a package of policy reforms to attract longer term direct investments.

Eight Centuries of Global Real Interest Rates, R-G, and the ‘Suprasecular’ Decline, 1311–2018

With recourse to archival, printed primary, and secondary sources, this paper reconstructs global real interest rates on an annual basis going back to the 14th century, covering 78% of advanced economy GDP over time. I show that across successive monetary and fiscal regimes, and a variety of asset classes, real interest rates have not been ‘stable’, and that since the major monetary upheavals of the late middle ages, a trend decline between 0.6–1.6 basis points per annum has prevailed. A gradual increase in real negative-yielding rates in advanced economies over the same horizon is identified, despite important temporary reversals such as the 17th Century Crisis. Against their long-term context, currently depressedbsovereign real rates are in fact converging ‘back to historical trend’ — a trend that makes narratives about a ‘secular stagnation’ environment entirely misleading, and suggests that — irrespective of particular monetary and fiscal responses — real rates could soon enter permanently negative territory. I also posit that the return data here reflects a substantial share of ‘non-human wealth’ over time: the resulting R-G series derived from this data show a downward trend over the same timeframe: suggestions about the ‘virtual stability’ of capital returns, and the policy implications advanced by Piketty (2014) are in consequence equally unsubstantiated by the historical record.

Global Imbalances and Policy Wars at the Zero Lower Bound

This paper explores the consequences of extremely low equilibrium real interest rates in a world with integrated but heterogenous capital markets and nominal rigidities. In this context, we establish five main results: (i) Economies experiencing liquidity traps pull others into a similar situation by running current account surpluses; (ii) Reserve currencies have a tendency to bear a disproportionate share of the global liquidity trap|a phenomenon we dub the “reserve currency paradox”; (iii) While more price and wage flexibility exacerbates the risk of a deflationary global liquidity trap, it is the more rigid economies that bear the brunt of the recession; (iv) Beggar-thy-neighbor exchange rate devaluations provide stimulus to the undertaking country at the expense of other countries (zero-sum); and (v) Safe public debt issuances, helicopter drops of money, and increases in government spending in any country are expansionary for all countries (positive-sum). We use these results to shed light on the evolution of global imbalances, interest rates, and exchange rates since the beginning of the global financial crisis.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Can this Time be Different? Policy Options in Times of Rising Debt

Episodes of debt accumulation have been a recurrent feature of the global economy over the past fifty years. Since 2010, emerging and developing economies have experienced another wave of historically large and rapid debt accumulation. Similar past debt buildups have often ended in widespread financial crises in these economies. This paper examines the factors that are likely to determine the outcome of the most recent debt wave, and considers policy options to help reduce the likelihood that it ends again in widespread crises. It reports two main results. First, the rapid increase in debt has made emerging and developing economies more vulnerable to shifts in market sentiment, notwithstanding historically low global interest rates. Second, policy options are available to lower the likelihood of financial crises, and to help manage the adverse impacts of crises when they do occur. These include sound debt management, strong monetary and fiscal frameworks, and robust bank supervision and regulation. The post-crisis debt buildup has coincided with a period of subdued growth as well as the emergence of non-traditional creditors. As a result, policy priorities also need to ensure that debt is spent on productive purposes to improve growth prospects and that all debt-related transactions are transparently reported.

External and Internal Factors of Cross-Border Capital Flows in Russia

The literature on the assessment of factors affecting cross-border capital flows is usually characterised by distinguishing of external and internal factors. The former as a rule include international indices of the global economic growth rate, interest rates and other indicators of profitability (for certain types of financial assets). The latter include domestic indices of the growth rate of the national economy, interest rates and the profitability of financial instruments, sovereign credit ratings. Since the beginning of the 21st century, cross-border capital flows in Russia have followed the same trends as capital flows in other emerging markets. A distinguishing feature of Russia was the negative impact of sanctions on the level of its financial openness. We estimated regressions, designed to evaluate the factors affecting the individual components of cross-border capital flows in Russia. Regressions for the three types of flows (liabilities of direct investment and portfolio investment liabilities, and assets) demonstrate good results. Among external factors, the dynamics of oil prices turned out to be significant, as well as the global stock index (for portfolio investment assets). Among internal factors, an increase in aggregate demand helps to attract foreign direct investment, and an increase in the yield of Russian financial assets (stocks and bonds) — to attract portfolio investments. The difference in interest rates is the determinant of all analysed capital flows. Our estimations confirmed the significance of the “round-tripping” movement of foreign direct investment in Russia.

Eight Centuries of Global Real Interest Rates, R-G, and the ‘Suprasecular’ Decline, 1311–2018

With recourse to archival, printed primary, and secondary sources, this paper reconstructs global real interest rates on an annual basis going back to the 14th century, covering 78% of advanced economy GDP over time. I show that across successive monetary and fiscal regimes, and a variety of asset classes, real interest rates have not been ‘stable’, and that since the major monetary upheavals of the late middle ages, a trend decline between 0.6–1.6 basis points per annum has prevailed. A gradual increase in real negative-yielding rates in advanced economies over the same horizon is identified, despite important temporary reversals such as the 17th Century Crisis. Against their long-term context, currently depressedbsovereign real rates are in fact converging ‘back to historical trend’ — a trend that makes narratives about a ‘secular stagnation’ environment entirely misleading, and suggests that — irrespective of particular monetary and fiscal responses — real rates could soon enter permanently negative territory. I also posit that the return data here reflects a substantial share of ‘non-human wealth’ over time: the resulting R-G series derived from this data show a downward trend over the same timeframe: suggestions about the ‘virtual stability’ of capital returns, and the policy implications advanced by Piketty (2014) are in consequence equally unsubstantiated by the historical record.

Impact of global uncertainty on the global economy and large developed and developing economies

ABSTRACTGlobal uncertainty shocks are associated with a sharp decline in global inflation, growth and interest rate. Global uncertainty shocks have more protracted, statistically significant and substantial effects on global growth, inflation and interest rate than U.S. uncertainty shocks. When controlling for domestic uncertainty, the decline in output following a rise in global uncertainty is statistically significant in each large country, except for the decline for China. For most economies, a positive shock to global uncertainty has a depressing effect on prices and official interest rates – exceptions are Brazil, Mexico and Russia, which are economies with large capital outflows during financial crises.

Interest Groups, Policy Responses to Global Shocks, and the Relative Likelihood of Currency Crashes Versus Banking Crises

Shocks to global interest rates or risk cause capital outflows for countries outside the core of the global financial system. These outflows lead to downward pressure on exchange rates and financial sector stress, in addition to having general contractionary effects. To defend the exchange rate, the appropriate internal response is a fiscal/monetary contraction. To maintain full employment and financial stability, the appropriate internal response is fiscal/monetary expansion. The contradiction in these policy responses implies policymakers prioritize hitting either internal or external targets after these shocks; but how do they decide? Using a fixed effects model and data from 100 emerging market and developing economies from 1990 to 2012, we show that the relative sensitivity of interest groups to these policy responses influences which response occurs. We find some evidence that this effect is stronger in the presence of more political-institutional constraints. Using a strategic probit model, we also find some evidence that this policy response influences the relative likelihood of banking crises versus currency crashes after these global shocks.

What drives the global official/policy interest rate?

ABSTRACTWe construct a GFAVAR model with newly released global data from the Federal Reserve Bank of Dallas to investigate the drivers of global official/policy interest rate. We find that 66% of movement in global official/policy interest rates is attributed to changes in global monetary aggregates (23%), oil prices (19%), global output (16%) and global prices (8%). Global official/policy interest rates respond significantly to increases in global output, inflation and oil prices. Increases in global policy interest rates are associated with reductions in global prices and global output. The response in official/policy interest rate for the emerging countries is more to global inflation, for the advanced countries (excluding the U.S.) is more to global output, and for the U.S. is to both global output and inflation.

Demographics and interest rates in Asia

Demographic developments have been regarded as one important cause of the long-term movement in global interest rates. This paper provides empirical evidence of the relationship between demographics and interest rates over a wide sample of advanced and emerging market economies. It also finds that capital account openness limits the direct sensitivity of a country's interest rates to its own demographics. The results suggest that future demographic developments will continue to apply downward pressure on the interest rates in Asia which foresees a rapid aging.

ECONOMIC POLICY UNCERTAINTY, GLOBAL OIL PRICES, INTEREST RATE, AND STOCK MARKET RETURNS - A COINTEGRATION AND CAUSALITY ANALYSIS

This study examines the time-varying cointegration and causal relationship between stock market indices, economic policy uncertainties, changes in global oil price and variation in short-term interest rates in two countries such as Russia and China, the largest oil exporting and importing countries respectively. The empirical analysis is based on the Johanssen (1996) cointegration and VEC Granger and Morris’s (1976) causality test with the selected variables in view of monthly data over the period from 1996:01 to 2016:12. The outcome of the Johansen tests indicated the existence of a long-run relationship among variables both in China and Russia. In the short run, the Block Exogeneity Wald Tests have indicated the presence of unidirectional granger causality between variables in both countries. The study has taken into account the 1998 Russian crisis and the 2008/09 global financial crisis.

Globalization, Market Power, and the Natural Interest Rate

We argue that strong globalization forces have been an important determinant of global real interest rates over the last five decades, as they have been key drivers of changes in the natural real interest rate—i.e. the interest rate consistent with output at its potential and constant inflation. An important implication of our analysis is that increased competition in goods and labor market since the 1970s can help explain both the large increase in real interest rates up to the mid-1980s and—as globalization forces mature and may even go into reverse, leading to incrementally rising market power—its subsequent and protracted decline accompanied by lower inflation. The analysis has important implications for monetary policy and the optimal pace of normalization.

The Turning Tide: How Vulnerable are Asian Corporates?

Using a new firm-level dataset with comprehensive information on Asian firms' FX liabilities, we show that Asia's nonfinancial corporate sector is vulnerable to a tightening of global financial conditions. Higher global interest rates and exchange rate depreciation increase the probability of default of Asian firms. A 30 percent currency depreciation is associated with a two-notch downgrade in the corporate credit rating (e.g., from A to BBB+), resulting in 7 percent of Asian firms falling into bankruptcy. But the impact is nonlinear-as the firms' FX liability increases, the balance sheet channel of exchange rate offsets, then dominates, the competitiveness channel. The balance sheet channel offsets the competitiveness channel when the share of U.S. dollar debt is between 10 and 20 percent. We also find that currency depreciation increases firm-level investment on average, but for firms with the share of FX liabilities above 20 percent, investment contracts with depreciation.

금리가 주택가격에 미치는 영향과 요인

This study examined the effect of CD rates on the national(regional) housing price index with the two and four variable TVC-VAR (4). The four variable model is constructed by adding domestic industrial production index and consumer price index. According to the empirical results, the effect of the CD rate on the housing prices is negative value before the Asian foreign exchange crisis, and after positive value until 2012. The relationship between CD rate and housing prices is weakened sharply with the reinforce of the low level of global interest rate and quantitative easing policies. However, the relationship between CD rate and housing prices is rebounded, after the US has finished the quantitative easing and has increased interest rate. The change between CD rate and housing prices by LTV, DTI, and real estate policies have declined slightly after the global financial crisis, while the influence on expected inflation, long-term and short-term interest rates, and domestic and overseas policy rates have become stronger clearly. Also, it was confirmed that the relationship between interest rates and house prices could be changed according to the expectation of interest rate rise. Global interest rate hikes have raised expectations for a increase in domestic interest rates. Accordingly, it is necessary to carefully consider the timing of the domestic benchmark rate hike considering the domestic economic situation and the real estate market.