Interesting Changes Research Articles

Reconsidering the nexus between monetary policy and economic growth in Nigeria: The role of interest rate, money supply, and financial inclusion

AbstractThe empirical evidence on the nexus between monetary policy and economic growth remains ambiguous with mixed and differing results, depending on the country's characteristics, the choice of monetary policy variables employed, and recently, the place of financial inclusion in monetary policy formulation and transmission mechanism. This study explores the nexus between monetary policy and economic growth in Nigeria while accounting for the roles of interest rate, money supply, and financial inclusion over a base period of 2004q1 to 2020q4 and a projected period of 30 quarters. Using the dynamic simulation autoregressive distributed lag (ARDL) model, the study finds that in the short run, only the effect of money supply on economic growth is statistically significant. However, in the long run, interest rate, money supply, and financial inclusion have statistically significant effects on economic growth. The results are supported by the plots of the dynamic simulated ARDL, where economic growth response is predicted at various time periods after forcing a ±1% change (positive and negative shocks) in interest rate, money supply, and financial inclusion. We, therefore, recommend among other things an aggressive financial inclusion strategy with clearly defined deliverables and timelines to reduce the percentage of persons excluded from the formal financial system.

Interest rate risk and monetary policy normalisation in the euro area

A low interest rate environment is susceptible to sudden increases in policy rates and heightened interest rate risk (IRR). By using a sample of 81 euro area banks during the period 2014Q4-2018Q1 and a confidential supervisory measure of IRR, this paper identifies which bank-specific characteristics can amplify or weaken the impact of a 200 basis points positive shock in interest rates. We find that banks reliant on core deposits, that hold more floating-interest rate loans and that diversify their lending, either by sector or geography, are less exposed to a positive change in interest rates. Interestingly, we discover that banks that did not exploit the exceptional financing provided by the European Central Bank (ECB) reveal greater IRR exposure. These findings advance the debate on the impact of a possible return to a normalised monetary policy on the euro area banking sector.

Enterprises Growth and Monetary Policy Asymmetric Effect: Evidence from Pakistan

This study investigates the impact of monetary policy on the growth of non-financial firms in the case of Pakistan. A sample size of 45 companies from different sectors has been taken. The data set taken for this study ranges from 2001 to 2016 while it is annual in nature. The study uses a GMM model for the estimation process. The monetary policy variables include interest rate, exchange rate, and money supply. The study showed different results regarding different sectors, which includes leather and tanneries and glass and ceramics interest rate have a negative relation with the 6 selected firms of these sectors. The other sectors have positive and significant results with any change in interest rate. Food and personal and glass and ceramics have insignificant results with any change in Exchange rate. The coefficient of Sugar, Refineries, Transport, and chemicals have negative signs and results are steady with the study. The third variable money supply has mixed result in different sectors, some of which shows positive result while some are showing a negative association with the money supply. Synthetic and rayon, Refineries, fertilizer cement, and automobile have negative relations while the rest have been found to have a positive relation.

Effect of oil price volatility on the trade balance in sub‐Saharan Africa

AbstractCrude oil price volatility as an important driver of the trade balance of economies has been widely documented in the literature. However, studies on the effect of oil price volatility on the trade balance in sub‐Sahara Africa (SSA) are limited. In this paper, we explore the effect of crude oil price volatility on the trade balance across 34 SSA countries using Pooled Mean Group (PMG) and Common Correlated Effect Pooled Mean Group (CCEPMG) estimators for the period January 2004 to December 2017. We find that crude oil price volatility exerts a negative effect on the trade balance of SSA countries. We further demonstrate that inflation, interest rates and exchange rates are significant transmission channels for oil price volatility to impact trade balance. We suggest that policymakers hedge as well as adopt price‐smoothing schemes to minimise the volatility of oil prices on trade balance. Again, countries should adopt an inflation‐targeting regime to ensure the stability of the general price level. Finally, central banks of the respective countries should apply a combination of foreign exchange market interventions and interest rate changes to reduce the effect of oil price volatility on their trade balance when the exchange rate is taken into account.

Monetary policy in a world of radical uncertainty

Monetary policy in a world of radical uncertainty

Experimental Research on the Impact of Interest Rate on Real Estate Market Transactions

Based on the close relationship between real estate and capital financing, this paper specifically discusses the impact of interest rate changes in China on real estate market transactions. Housing price regulation has been a hot and focused topic of economics research. It is important to explore the effect of interest rate on real estate market transactions, for the interest rate is an important tool for the government to carry out macrocontrol of the real estate market and affects residents’ consumption choices of goods. Currently, most scholars believe that interest rate changes have a significant impact on house prices, but their studies are often based on empirical analysis of macro data, making it difficult to exclude the effects of economic differences, geographic characteristics, and other factors. Also, some scholars believe that it is difficult for interest rates to have a long‐term impact on real estate prices. This paper applies the experimental economics method to simulate real estate transactions in the real market and control the irrelevant variables to study the movements of housing prices, transaction volumes, consumer transaction intentions and bubble indices under different deposit and lending rates. The results show that: (1) The level of deposit interest rate has a significant inhibitory effect on housing price and a significant promoting effect on real estate market transaction volume and traders’ house‐buying behavior. The higher the level of deposit interest rate is, the better the degree of regulating house prices deviating from the theoretical price is and the better the effect of inhibiting market bubbles. (2) The level of lending rate has a significant inhibiting effect on the volume of real estate transactions and a significant promoting effect on the house‐buying behavior of traders, but its effect on housing prices and market bubbles is not significant. The higher the level of lending rate is, the better the degree of regulating housing prices deviating from the theoretical price is. (3) The effect of deposit interest rate and lending rate policies on the house selling behavior of market traders is not significant.

The pass-through effect of unconventional monetary policy to net interest income structure of European banks

Purpose: Financial banking intermediaries are sensitive to changes in market interest rates. The volatility of market interest rates affects the level of bank net interest income and determines the bank interest rate policy. Banks are actively managing structural interest rate risks to mitigate the negative effects of changes in market interest rates. The post-crisis period is characterised by unconventional monetary policy, and one of the basic objectives of the monetary instrument is a negative interest rate policy. This paper researches the effects on the bank net interest income structure with an impact on bank performance indicators. The basic research hypothesis is that during the financial crisis and a negative interest rate policy, the movement of bank interest income does not converge compared to a bank interest expense. Methodology: According to the characteristics of the dataset, which includes 32 listed banks from Great Britain, Switzerland and the European Union for the period 2002-2019, panel data analysis is applied. To analyse the effect of the interest rate level on total interest income and total interest expense, we formed two models. Fixed-effects models were used for parameter estimation. Results: A bank interest expense is more sensitive to unconventional macroeconomic policy than bank interest income. Conclusion: The traditional interest earning customer related business can enable banks to stabilise the bank performance indicator during market disruption.

МЕХАНІЗМ РЕГУЛЮВАННЯ ІНФЛЯЦІЙНИХ ПРОЦЕСІВ ЗА ДОПОМОГОЮ ІНСТРУМЕНТІВ ФІНАНСОВОГО РИНКУ

The article is devoted to topical issues of the impact of the central bank's monetary policy on the economy, including its financial sector (financial markets) and inflation through the transmission mechanism. Its purpose is to study the essence and the effectiveness of the implementation of the monetary policy of the central bank from the point of view of its impact on inflation and the development of the financial market in Ukraine. Attention is focused on the wide use of inflation targeting policy and its components in the world. The transmission mechanism of the influence of monetary policy on the economy and inflation is considered. The approaches to the transmission mechanism of monetary policy and its main channels through which it affects the activation of the functioning of the financial market, the economy and inflation is considered. It is noted that the main channel for the transmission of monetary policy in Ukraine is the interest rate channel. Its action is based on changes in interest rates. Such changes contribute to a wider placement and attraction of funds by business entities. As a result of effective placement and attraction of funds, they can solve the issues of consumption, accumulation and investment. Thus, they affect the level of aggregate demand, economic activity, the development of financial markets and inflation. Statistics from the central bank of Ukraine confirm the effectiveness of the transmission mechanism of its monetary policy in resuming the development of the financial market and controlling inflation. The "de-dollarization" of loans and deposits has been steadily progressing in Ukraine in recent years. It contributes to weakening the influence of external factors on the domestic financial sector and increases the importance of domestic interest rates in decision-making by households and enterprises. The continuation of this trend in the future, which will be facilitated, among other things, by maintaining price and financial stability, will have a positive impact on the effectiveness of the monetary policy transmission mechanism. At the same time, it was concluded that it is necessary to take into account non-monetary factors influencing inflation and take them into account in changing the operating procedure of monetary policy. This will effectively limit the impact of the changing liquidity situation in the banking sector on the cost of resources in the financial market, and therefore on all other rates in the economy.

ПІДХОДИ ДО УПРАВЛІННЯ РИЗИКАМИ ФАРМАЦЕВТИЧНОЇ КОМПАНІЇ

The study of approaches to the classification of types of risks revealed a significant range of groups and categories according to which the risks of economic activity of the enterprise are classified. In order to determine the frequency of mention of different groups and types of risks, a content analysis was conducted. According to the results of this analysis, authors concluded that the most common are financial, innovative, industrial, commercial risks. The frequency of mentioning certain types of risks within the information sources in each group was also revealed. According to the results of the content analysis, it was found that among the financial risks, the following risks have the greatest number of mentions: changes in exchange rates; change in interest rates; non-fulfillment of financial obligations to external agents; reduction of profitability; unstable financial condition. The most mentioned types of innovation risks were the risks of introducing new technology and interrupting research funding. The key types of production risks are cost growth; inefficient work of staff; equipment wear. The most mentioned types of commercial risks are the decline in sales due to reduced demand and supply. According to the most significant types of risks, the indicators that characterize them were selected on the example of a pharmaceutical company. The calculated losses from the impact of risks and the probability determined by the expert method are the basis of the developed matrix of risk assessment. The coefficient of variation is used as an indicator of the degree of influence of a particular type of risk on the results of the research enterprise, namely the revenue from sales of the company's products. Multiplying the coefficient of variation for each of the types of risks on the company's sales revenue made it possible to determine the projected losses due to the impact of risks. To form a matrix of risk assessment and risk level, the experience of Bayer Group was used with the appropriate adaptation of the amount of costs to the realities of the studied enterprise. Risk reduction measures are also proposed. The developed recommendations for risk management of the pharmaceutical company's business activities allow to reasonably assessing the level of the most significant types of risks, respond in a timely manner to their potential impact, minimizing the loss of budget, time and resources.

Interest Rate Skewness and Biased Beliefs

Conditional yield skewness is an important summary statistic of the state of the economy. It exhibits pronounced variation over the business cycle and with the stance of monetary policy, and a tight relationship with the slope of the yield curve. Most importantly, variation in yield skewness has substantial forecasting power for future bond excess returns, high-frequency interest rate changes around FOMC announcements, and consensus survey forecast errors for the ten-year Treasury yield. The COVID pandemic did not disrupt these relations: historically high skewness correctly anticipated the run-up in long-term Treasury yields starting in late 2020. The connection between skewness, survey forecast errors, excess returns, and departures of yields from normality is consistent with a theoretical framework where one of the agents has biased beliefs.

Analysis of the Repricing Practice of Newly Disbursed Housing Loans

In the Hungarian banking system, newly disbursed, fixed-rate housing loans are typically repriced with a lag of several months after a change in the interbank rates, which can be viewed as the cost of funds for institutions. This paper examines the number of months it takes for a change in the interbank rates to pass through to the interest rates of newly disbursed housing loans with an initial interest rate period of over one year. The two-step analysis looks at the repricing practices observed for Certified Consumer-Friendly Housing Loans (CCFHLs) employing a descriptive approach, and then a vector autoregressive model is used to estimate the speed at which interbank rates pass through to aggregate housing loan rates. Based on the authors’ estimate drawing on aggregate interest rate statistics, the changes in interbank rates are incorporated into the mortgage rates applied by Hungarian banks in approximately four months; however, according to the interest rate condition data of institutions’ CCFHL announcements, banks’ repricing practices vary, leading to differences in the speed and extent of the interest rate changes following a shift in the cost of funds.

Эконометрический анализ влияния монетарной политики на отрасли российской промышленности

This paper presents the econometric analysis of the heterogenous effects of monetary policy on industrial output and producer prices in manufacturing sector in Russia. The estimation of the differences in the impulce responses to the interest rate shock is conducted using structural VAR-models, the analysis of key industrial characteristics, explaining differences through monetary transmission channes, is based on principal components and correlations. Our findings reveal the strongest response to monetary policy in such industries as manufacture of rubber and plastic products, manufacture of non-metallic mineral products, manufacture of pulp and paper, manufacture of machinery nd equipment, manufacture of electrical, electronic and optical equipment and manufacture of motor vehicles and equipment. Besides, in these industries the response is usually deffered to 2–3 months after the shock. Our findings also show that the impact of monetary shocks on output is particulary strong in industries producing capital goods and supplies for construction but particularly weak in industries with high concentration and high profits. That means that differences in industrial responses to monetary policy can be described by two key channels of monetary transmission — interest rate channel (due to high demand sensitivity to interest rate changes) and bank lending channel (due to important role of bank loans in fi rms’ financing).

THEORETICAL AND METHODOLOGICAL BASIS OF MANAGEMENT OF THE BANK INVESTMENT PORTFOLIO IN THE CONDITIONS OF THE RUSSIA-UKRAINE WAR AND AFTER THE QUARANTINE VIRAL PANDEMIC OF COVID-19

The types of investments used in the formation of the investment portfolio were supplemented and expanded. The principles of formation and use of the foundations of managing the investment portfolio of a commercial bank and the purpose of its strategic management were studied and augmented. It is justified that in the process of forming an investment portfolio in commercial banks, their investment attractiveness growths, which also leads to an raise in financial stability and makes it possible to increase their assets. It is noted that the efficiency and profitability of using the investment portfolio depends on the quality of performance of such functions of its management, namely: stabilization of the bank profits regardless of the phases of the business cycle; reduction of credit risk in the portfolio of bank loans; diversification of such loans taking into account the geographical coverage of clients; maintaining the level of liquidity; using a portfolio as collateral; insurance of banking activity against losses as a result of changes in exchange rates and interest rates; ensuring the flexibility of the bank portfolio of assets; increasing the financial indicators of the bank balance thanks to the quality of securities. The main goal of the formation and use of the commercial bank investment portfolio is determined, which is to ensure the implementation of its investment strategy by selecting the most effective and safe investment projects and financial instruments. It was established that the investment portfolio should be formed considering their current profitability; rates of capital cost growth; the risk of their value changing over time; financial instruments for managing such a portfolio. It has been proven that the effectiveness of the formation and use of an investment portfolio depends on the choice of its management strategy; influence of internal and external factors; an innovative approach to the speed of reaction of management personnel to such changes and the ability to constantly adjust the strategic management process; getting out of crisis situations with the least losses in the process of managing the investment portfolio.

Introduction to the Inclusion of the Real Interest Rate with other factors in Phillips Curve Analysis

This paper summarizes the arguments and counterarguments within the scientific discussion on the issue regarding the Inclusion of the Real Interest Rate with other factors in Phillips Curve Analysis. The main purpose of the article is to cause economists to consider the inclusion of the real interest rate in Philips Curve analysis. Earlier economists have examined the Phillips Curve, including Irving Fisher (1926). Later Phillips (1958, 1961) made enough of impression to give the Phillips Curve its appellation (1958, 1961). Further work has been done by Freidman, Phelps Lucas, Rapping and others. Shifts from the Short Run Phillips Curve (SRPC) to the Long Run Phillips Curve (LRPC) have been explained primarily through workers not realizing their real wage has decreased until some time has passed. Also, this shifting from the SRPC to the LRPC is due to producers thinking that demand for their products has had a real, sustained increase, producers finally realize that is not true. This article agrees with those factors being present but also posits the idea of changes in the real interest rate affecting the shift form the SRPC to the LRPC. This brief article summarizes the conclusions of five econometric papers that suggest that the real interest rate should be included in Phillips Curve Analysis. The research empirically confirms and theoretically proves that the five articles with econometric evidence suggest that the real interest rate be included in Phillips Curve Analysis. Though Austrian economists consider capital in their theories, Austrian economists do not use Phillips Curve analysis but instead employ Hayekian Triangles. The results of the research shows that inflation and unemployment have a stable and inverse relationship. These results can be useful for economic analysts, government, financial experts, policymakers.

Эмпирический анализ гипотезы перманентного дохода на данных постсоветской России

The paper tests the hypothesis of permanent income on modern (2007– 2019) data of aggregated income indicators and expenditure of the Russian households. To test the hypothesis, we use John Shea’s methodology. According to his approach, the values of the predicted indicators of the current change in income and interest rates are determined using several sets of variables. The empirical analysis carried out by these authors shows that the behavior of households in Russia does not follow Milton Friedman’s permanent income hypothesis, but is consistent with Christopher Carroll’s “buffer stock” model. Fluctuations in income have a statistically significant effect on fluctuations in consumption. This means that Russian consumers are not inclined to smooth future consumption over the entire life cycle, but tend to maintain a certain level of savings for several periods in advance as a safety net in the event of a fall in permanent income. This conclusion is logical for the post-Soviet Russian space. As the studies show, in developing countries and with less developed financial institutions and markets, individuals have difficulties in planning their behavior. They face a narrow planning horizon with a high degree of uncertainty about the future.

Macroeconomic Variables and Financial Performance of Commercial Banks in South Sudan

The banking institutions in South Sudan have been experiencing challenges due to various factors affecting their performances. There has been little research on the causes of bank profitability in South Sudan, and since different studies elsewhere demonstrate disparities in the impact of macroeconomic variables on bank performance, this study has been taken.The primary purpose of this research was to determine the effect of Macroeconomic Variables on the financial performance of commercial banks in South Sudan: Specifically, the study aimed: toassess the effect of exchange rate on the financial performance ofcommercial banks in South Sudan; to examine the influence of interest rate on the financial performance of commercial banks in South Sudan; to examine the effect of inflation rate on the financial performance of the commercial bank in South Sudan. The study was anchored onthe International Fisher Effect (IFE) theory. The target population for this study were the 30 commercialbanks in South Sudan. A purposive sampling method was used to select 28 out of the 30 commercial banks for the study. The researcher considereda longitudinal cohort research design. A panel of data for the period of 2014 to 2020 collected from the Central Bank of South Sudan, the world bank data bank, and the commercial bank’s websites were used in the study. Face validity was used for the measurement of the validity of the data. To show the reliability of the data, the researcher used data source triangulation to incorporate various sources of the data in an investigation. Data analysis included descriptive statistics and multiple regression analysis. The Pooled OLS with Panel Correlated Standard Error results suggested that of the macroeconomic factors analyzed, the exchange rates had no significant effect on the financial performance of commercial banks at a 5% level of confidence ( = -1.862119, p-value = 0.212 > 0.05) . The interest rate had a significantly positive influence on commercial banks performance in South Sudan at a 5% confidence level(β = 41.31904, p-value = 0.000 < 0.05). The inflation rate had no significant effect on the financial performance of commercial banks in South Sudan at a 5% level of confidence (β = 2.256533, p-value = 0.116 > 0.05). The following recommendations were made in the context of the results and conclusions.Commercial banks should pay special attention to interest rate changes, which have a significant impact on the financial success of South Sudanese commercial banks.The government should implement regulations and an exchange rate regime that would allow banks to profit from the exchange rate sector. The inflation rate should be monitored to ensure that it is always within control.

Differential equation model of financial market stability based on big data

Abstract The financial system is a complex, nonlinear chaotic dynamic system caused by its operating mechanism. Therefore, the application of previous forecasting models cannot explain the existence of various interference factors in the financial market and the chaotic characteristics of the financial system. With the help of financial market stability, the article establishes a series of differential equation models that reflect changes in interest rates in the financial system. The article introduces the factor of macro-control on the premise of respecting market regulation to regulate and intervene in economic relations and economic operation status. We apply the Logistic model and stability theory to analyse the positive equilibrium point characteristics of the system and obtain the interest rate liquidity equation with a time-lag financial network.

Transmission of Monetary Policy through Credit Interest Rates in Turkey: A Microeconomic Perspective

This study aims to examine the monetary policy transmission through the credit channel from a microeconomic perspective by using the fixed effect dynamic panel model. It is estimated to what extent policy interest rate changes are transferred to the short-term interest rate depending on the type of loan. Results confirm that there is a high degree of inertia in both the commercial and consumer loan interest rates. In terms of the transmission of monetary policy, changes in policy interest rates are transferred to commercial loan interest rates by 11% and consumer loan interest rates by 15% in the short term. These values reveal that policy interest rate changes are gradually transmitted to market interest rates. Variables representing bank size, leverage, and market power in terms of distinctive characteristics have a limited impact on both commercial and consumer loan interest rates in the analyzing period. However, the market share of a bank has a significant impact on both commercial and consumer loan rates.

The impacts of Uncertainty on the Industrial Product: Empirical Evidence with the PVAR Model

The interest rates and uncertainty are supposed to play an important role on the agents' decisions. This study has two main objectives. First, we verify the impact of industrial output to the investments and real interest rates shocks in mercusur countries using the PVAR model through the GMM system (1997-2016). The results of the estimates show, on the one hand, that industrial production responds positively and statistically significant to changes in investments and, on the other one, it responds negatively to changes in real interest rates. Granger's causality test suggests that investments and interest rates Granger-cause the industrial product. Second, we present empirical evidence of the role of uncertainties in the agents' investment decision-making process, considering only the case of Brazil (2002-2016). We find that the industrial product and investments increase with the agents' confidence on the federal government future behavior but decrease when uncertainties raise.

Law of interest rate changes in financial markets based on the differential equation model of liquidity

Abstract The paper establishes a related differential equation model about changes in financial interest rates. It uses information related to liquidity to feedback the law and stability of differential equations in interest rate changes. The article applies stochastic processes and partial differential equations to complex financial networks to confirm node yields in financial market networks. It confirms the existence of interest rate stickiness in Chinese financial markets. The advantage of this interest rate model is that when the external economic environment changes, the state of interest rates will also change accordingly.