Interest Rate Hikes Research Articles

The Prediction of the exchange rate between the us dollar and rmb through liner regression and arima model

The exchange rate between the US dollar and the RMB has been changing over the past year. Through the analysis of daily changing data, the direct calculation of linear regression will lead to the overall upward trend of the data, but not the rise and fall of the exchange rate. Therefore, it is necessary to introduce a more accurate ARIMA model to predict the possible development and change of data in a short period of time and analyze what policy causes the sharp fluctuations of data in a short period of time. In the process of applying the ARIMA model, this paper analyzed the shortcomings of ordinary linear regression and therefore proposed how to select the appropriate model for different data processing. The research results of this article provide more beginners in statistics with ideas for solving problems: prediction problems that cannot be solved by simple linear regression and existing elementary models can be analyzed using certain time series models, and reasonable explanations for data changes can be given based on existing policy reasons, Including irresistible inflation and the United States' own adjustment to the Federal Reserve's interest rate hike.

Stock Market Price Effect of the Silicon Valley Bank Failure – A Pre and Within Analysis

State-chartered commercial bank – Silicon Valley Bank (SVB) was the primary subsidiary of SVB Financial Group. In March 2023, after central bank–endorsed interest rate hikes during the 2021–2023 inflation surge, there was a bank run on its deposits, which led to its collapse. This marked the third-largest bank failure in U.S. history and took place alongside the March 2023 United States bank failures. This paper evaluated the differential effect of Silicon Valley Bank failure on the stock market. Two objectives were pivotal, namely the examination of differential stock price performance of SVB prior to failure. Secondly is the examination of the differential effect of SVB failure on the US S&P500 stock price performance. Applying a t-test statistics for difference in means, the results show a significant difference in mean stock price of SVB between a month and two weeks period before SVB failure at P<0.05, with higher variance within the week before failure. Furthermore, the t-test results disclose a highly significant difference in US S&P500 mean stock price between February 2023 (a month before failure) and March 2023 (within the month of failure) at P<0.001 with a high variance in March; however, this effect did not last long. Accordingly, the paper concludes that the failure of a prominent financial institution may trigger ripples in a major stock market index. Additionally, investors should be cautious of an unprecedent and abnormal higher variance in a corporate stock price as this might be an ominous indicator of potential financial failure. This paper contributes a current information for managers and particularly for speculative investors for decisions on selling short or long. It recommends further research to examine the effect of SVB failure and FDIC intervention on stock markets.

Optimal monetary policy under currency mismatches in imperfect financial market

There is a large body of evidence documenting that many emerging market economies are subject to external financial shocks. We propose a two-country Dynamic General Equilibrium Model(DSGE) with three market imperfections: currency mismatches, moral hazard in banking and dominant currency pricing. Building upon Aoki, Benigno and Kiyotaki (2020) and Akinci, Queralto (2020), we analyze the optimal monetary policy in response to foreign interest rate shocks under the presence of the frictions. The results show that foreign monetary policy tightening leads to sharper local currency depreciation when import and export prices are set in the dominant currency compared to producer currency pricing. The optimal policy response to the foreign interest rate hike is a foreign exchange (FX) intervention with relatively strict inflation targeting. Macroprudential measures offer a modest macroeconomic and financial stabilization effect. We also conclude that domestically-produced goods inflation targeting alone is the worst monetary approach in EMs that attribute several real economy and financial imperfections. Nevertheless, allowing for integration of different monetary tools as well as introduction of FX hedging would be an interesting extension of our analysis.

Research on Liquidity Risk Management of Commercial banks under the impact of Fed rate hike

Liquidity risk refers to the risk of insolvency, credit decline, market value decline and other consequences that commercial banks cannot obtain enough working capital when paying debts or maintaining business operations. In the information society, liquidity risk has become a huge obstacle to the development of commercial banks and even to their survival. And in the most aggressive Fed rate hike cycle since March 2022, liquidity risk management should be a top concern for regulators and commercial banks. This paper studies the course of interest rate hike of the Federal Reserve, its impact on commercial banks, the current situation and difficulties of liquidity risk management of American commercial banks, and puts forward countermeasures and suggestions accordingly: commercial banks should strengthen the liquidity risk management ability, adjust and optimize the deposit and loan structure, strengthen the liquidity risk management awareness of managers, and so on.

Research on the Dynamic Changes in Tesla Stock Price with this turn’s Interest Rate Policy

Since the Federal Reserve's action of a series of interest rate increases in response to high inflation, the U.S. equity market as a whole and individual stocks have been under pressure from soft landing and recession concerns, which is reflected in stock prices. In this article, the impact of the Federal Reserve rate increase on Tesla stock returns will be evaluated. The applied VAR model will contribute to the analysis of the dynamic returns of stock returns. The results of the research will present the actual extent of the impact of the rate increase policy on the stock in quantitative terms, as Tesla is one of the top 10 multinational companies in terms of market capitalization has increased the reliability of the data model. The results imply that the Federal Reserve's decision to raise interest rates has an extremely negative impact on stock yields and that this impact diminishes over time. For policymakers, this monetary policy can be effective in the short run effectively suppressing asset prices rather than absorbing more liquidity for their capital markets. For investors, the period of interest rate hikes is not the appropriate time to invest since company profits will be affected by the strength of the local currency which will not meet the expected standards.

International Spillovers of Tighter Monetary Policy

Central banks around the world are tightening monetary policy in response to a global surge in inflation not seen since the 1970s. This synchronization of global interest rate hikes and further increases expected by markets, illustrated in figure 1, have raised concerns about adverse international spillovers of tighter monetary policy.

Study of the Global Economic Recession

Since 2020, the global economy and financial system have suffered the biggest demand and supply shock since the financial crisis in 2008 as the new pneumonia epidemic spread to almost all countries. Panic in international financial markets has been rising, and asset prices of stocks, bonds, currencies, commodities and other assets have fallen rapidly. This paper analyzes the impact of the epidemic on the global economic and financial system from different perspectives, including the supply chain, the Russia-Ukraine war, and the US interest rate hike. In this paper, we argue that since 2020, the "pandemic" of Newcastle pneumonia has caused a comprehensive impact on the manufacturing industry, service industry, public confidence, and social governance, and a liquidity crisis in the international financial markets. Whether the epidemic will evolve into a financial and economic crisis depends on the development of the epidemic and the effectiveness of preventive and control measures, on whether the epidemic will trigger corporate debt defaults and sovereign debt crises in some countries, and on whether a fall in oil prices or geopolitical conflicts will trigger financial and capital flow crises in emerging markets. Given the inevitable impact of the epidemic on the economic growth situation in various regions, the global economy is expected to fall into recession in the future.

An Empirical Study on the Impact of Fed Rate Hikes: Perspective from Fama-French Three-Factor Model

The Fed’s interest rate hike is currently a hot issue of social concern. Some researchers believe that the Fed's rate hike this time is an "urgent cycle" rather than a "long-term cycle". However, there is still no unified explanation for the formation mechanism and scope of influence behind it. Therefore, this paper collects the return data of the US stock industry and conducts a Fama-French three-factor regression analysis. Research shows that the short-term negative impact of the U.S. stock market in the context of the Fed raising interest rates is not conducive to the development of the U.S. stock market, meanwhile, the energy industry benefits from the hike on the long term. The fed rate hike will have a negative impact on the rest of the industry in the short term, with the durable goods sector and business equipment sector having the most severe impact, and the utility sector and non-durable goods sector having a relatively small negative impact.

Analysis of the Influence, Reason and Recovery of U.S. Inflation on Different Industries

Over the past 10 years, the US inflation rate has been perfectly controlled at around 2%, which is the ideal target range of the Federal Reserve. This situation has been maintained until March 2021. But it began to climb upward in April and reached a peak in February 2022. To explore the causes of American inflation and its impact on the real economy, this paper selects the food, real estate, energy, and automobile industries as the research targets. According to the data from March 2020 to the present, we find that although the price change trend of various assets is rising, the change range is inconsistent, which is related to the price elasticity of the product itself. In addition, combined with the current policies and relevant industry information, the paper analyzes the recovery schemes of various industries. Moreover, considering the Fed's interest rate hike, asset prices are expected to gradually fall in the future.

Zimbabwe – Interest Rate Hike

Zimbabwe – Interest Rate Hike

Practical Applications of Financial Globalization and Its Implications for Diversification and Portfolio Risk

In <b><i>Financial Globalization and Its Implications for Diversification and Portfolio Risk</i></b>, from the October 2021 issue of <b><i>The Journal of Investing</i></b>, authors <b>Ramu Thiagarajan</b>, <b>Jiho Han</b>, <b>Aaron Hurd</b>, <b>Hanbin Im</b>, and <b>Gaurav Mallik</b> (all of <b>State Street Global Advisors</b>) explore why global stock investing has become less effective as a diversification strategy. From the 1980s until 2008, international markets became steadily more interconnected through trade and financial exchange. But starting in 2008, the global financial crisis, trade wars, and the COVID pandemic have caused a slowdown in international trade that some call “deglobalization.” However, financial globalization has continued to increase, due to increased worldwide use of the US dollar in transactions. The authors focus on how increasing financial globalization impacts foreign stock markets and find that US monetary policy shocks (such as unexpected US interest rate hikes by the Federal Reserve) that cause US stocks to drop also cause foreign stocks to drop. They assert that financial globalization causes greater interconnectedness among financial markets in different countries, resulting in higher correlation of stock price movements across national boundaries. The upshot is that portfolios containing a mix of US and foreign stocks are becoming less diversified. The authors therefore suggest that investors explore diversification through alternative investments like commodities and currencies.

The Spillover Effects of U.S. Monetary Policy Normalization on the BRICS Based on Panel VAR Model

Using the monthly data from December 2008 to March 2018 and a panel vector autoregression (PVAR) model, this paper empirically analyzes the spillover effects of U.S. monetary policy normalization on the total output, inflation, trade balance, and exchange rates in BRICS. The results show that the Fed’s interest rate hike and balance sheet shrinking will both lead to a decrease in BRICS’ output, a decline in inflation, a deterioration in the trade balance, and a depreciation of the exchange rate. In addition, the spillover effects of the Fed’s interest rate hike and shrinking of a balance sheet are both relatively long lasting, but there is a certain difference between the two effects; that is, the Fed’s interest rate hike has a greater impact on the macroeconomic variables of BRICS countries than the shrinking of balance sheet. Based on the conclusions, we propose to establish and improve the regulatory system of international capital flows, pay close attention to commodity prices, and strengthen policy coordination and communication among BRICS countries so as to mitigate the adverse impact of U.S. monetary policy normalization.

How Large Is the Risk of Stagflation in the Eurozone?

The rapid recovery of demand combined with supply constraints has led to rising prices during the past months. This is evident in oil and gas markets, but also in international trade, which has been thrown out of step by bottlenecks at Asian ports. This situation creates a trade-off for the European Central Bank, because a more expansionary monetary policy cannot mitigate the supply bottlenecks and supply-side restrictions, while a more restrictive monetary policy would slow down the economic recovery. For this reason, key interest rate hikes in the eurozone are not to be expected for 2022. If the supply-side factors become persistent and wage policy tries to pass the price effects on, monetary policy will be forced to become restrictive.

Vizija novog ekonomskog sistema posle prelaska pandemije u endemiju iz perspektive Srbije

Vizija novog ekonomskog sistema posle prelaska pandemije u endemiju iz perspektive Srbije

The Causal Impact of the Rapid Czech Interest Rate Hike on the Czech Exchange Rate Assessed by the Bayesian Structural Time Series Model

I have employed the Bayesian Structural Time Series model to assess the recent interest rate hike by the Czech Central Bank and its causal impact on the Koruna exchange rate. By forecasting exchange rate time series in the absence of the intervention we can subtract the observed values from the prediction and estimate the causal effect. The results show that the impact was little and time limited in one model specification and none in the second version. It implies that the Czech Central Bank possesses the ability to diverge significantly from the Eurozone benchmark interest rate at least in the short term. It also shows that the interest rate hike will not be able to curb global inflation forces on the domestic price level.

The Political Anatomy of Economic Crises -the case of Turkey: 1945-2018

The foundations of economic and financial crises are conventionally attributed to the technicalities of macroeconomic fragilities. Yet political instability (caused by the deficiency of democracy and/or unfunctional political institutions) can also be considered as a major determinant of economic instability by deteriorating the debt dynamics through depreciation of the national currency or the ascent of interest rates. Analogously, political instability, for instance, disruption of cabinet durability, to a large extent depends on the economic performance of governments. Hence, though most economists conceive macroeconomic fragilities as the mother of all crises, the issue is rather complex and there is an intermingled relationship between political and economic crises. &#x0D; &#x0D; Besides, as macroeconomic fragilities or structural imbalances are results of inappropriate policies, the political rationale and the social motives behind such misleading policies should also be well comprehended. For that purpose, an elaboration will enable the negation of the dominant argument that it is only economic factors that instigate crises. &#x0D; &#x0D; This study investigates the political background of eight economic crises in Turkey, since 1946. It is observed that in all of them, significant levels of devaluation and retraction of growth are experienced. All of the devaluations were indispensable, except the first one in 1946 which was discretionary and precautionary. The crises of 1978/9, 1994, and 2001 ended with drastic austerity programmes, albeit the others, where governments refrained with macroeconomic adjustment through fiscal and monetary measures. The 2001 twin-crisis was so peculiar, as it was to a large extent caused by the design-defection of the programme recommended by the IMF. Yet, since the attempt of financial liberalization, all of the other economic crises were prompted by capital flights. The 2008/9 crisis was due to global contagion and the 2018 crisis was caused by the tensions in the bilateral relations with the US, amid high private sector foreign debt. In all economic crises, the profligate fiscal stance of governments has played a prominent role, as well as the maintenance of appreciated exchange rates, but such choices had a political rationale. Finally, in the background of all the economic crises in Turkey, we observe stern political instability.&#x0D; &#x0D; Political instability not only restricts the rational decision-making capacity of the policy-maker, especially if it converges into a political crisis, but also exacerbates economic sentiment, either by consumer confidence or by investor appetite, which subsequently results in economic decline. It also intensifies risks and causes exchange rate depreciation as well as interest rate hikes, both of which degenerates debt dynamics. Since the financial liberalization attempt, as portfolio investments have boosted, political stability has become imperative to sustain the stability of risk-sensitive financial markets. Both the experience of the 2008/9 and especially the 2018 financial crisis, have verified the importance of political instability as a determinant of economic crises. In short, economic crises cannot be analysed disregarding their political anatomy.

Firms’ expectations and monetary policy shocks in the euro area

We investigate the impact of monetary policy shocks on firms’ selling price and production expectations utilizing a proxy structural vector autoregressive (SVAR) model for ten euro-area economies during the period from 1999:1 to 2018:6. To identify monetary policy shocks, we utilize instruments such as a narrative measure of monetary policy. Our estimated impulse responses indicate that firms initially revise their expectations in a manner consistent with imperfect information theoretical settings, e.g., increasing their production and selling price expectations after an unanticipated interest rate hike. Interestingly, we observe an overshooting pattern consistent with firms’ learning over time. Following the initial surprise that leads firms to raise their production and selling price expectations after an unanticipated interest rate hike, firms gradually come to expect contractionary monetary policy shocks to decrease economic activity, consistent with initially imperfectly informed firms revising their expectations in accordance with a learning process about the economy.

Monetary policy and the cross-section of stock returns in a market with distortions

We study the effects of monetary policy in an economy with distortions. Between 2006 and 2019, China’s central bank frequently adjusted required reserve ratios (RR) and interest rates (IR) to implement monetary policy. We examine how stock prices react to these adjustments and distinguish between state-owned-enterprises (SOEs) and private-owned-enterprises (POEs). We find that SOEs benefit disproportionately more from expansionary monetary policy than POEs, especially via interest rate cuts. In contrast, POEs benefit greatly from contractionary monetary policy via interest rate hikes. These findings shed light on the monetary transmission mechanisms in a market with interest rate control and credit rationing.

A Study on Estimation and Prediction of Vector Time Series Model Using Financial Big Data (Interest Rates)

Due to the global economic downturn, the Korean economy continues to slump. Hereupon the Bank of Korea implemented a monetary policy of cutting the base rate to actively respond to the economic slowdown and low prices. Economists have been trying to predict and analyze interest rate hikes and cuts. Therefore, in this study, a prediction model was estimated and evaluated using vector autoregressive model with time series data of long- and short-term interest rates. The data used for this purpose were call rate (1 day), loan interest rate, and Treasury rate (3 years) between January 2002 and December 2019, which were extracted monthly from the Bank of Korea database and used as variables, and a vector autoregressive (VAR) model was used as a research model. The stationarity test of variables was confirmed by the ADF-unit root test. Bidirectional linear dependency relationship between variables was confirmed by the Granger causality test. For the model identification, AICC, SBC, and HQC statistics, which were the minimum information criteria, were used. The significance of the parameters was confirmed through t-tests, and the fitness of the estimated prediction model was confirmed by the significance test of the cross-correlation matrix and the multivariate Portmanteau test. As a result of predicting call rate, loan interest rate, and Treasury rate using the prediction model presented in this study, it is predicted that interest rates will continue to drop.

The impacts of interest rate changes on US Midwest farmland values

PurposeThis paper quantifies the effects of recent Federal Reserve interest rate changes, specifically recent hikes and cuts in the federal funds rate since 2015, on Midwest farmland values.Design/methodology/approachThe authors apply three autoregressive distributed lag (ARDL) models to a panel data of state-level farmland values from 1963 to 2018 to estimate the dynamic effects of interest rate changes on the US farmland market. We focus on the I-states, Lakes states and Great Plains states. The models in the study capture both short-term and long-term impacts of policy changes on land values.FindingsThe authors find that changes in the federal funds rate have long-lasting impacts on farmland values, as it takes at least a decade for the full effects of an interest rate change to be capitalized in farmland values. The results show that the three recent federal funds rate cuts in 2019 were not sufficient to offset the downward pressures from the 2015–2018 interest rate hikes, but the 2020 cut is. The combined effect of the Federal Reserve's recent interest rate moves on farmland values will be positive for some time starting in 2022.Originality/valueThis paper provides the first empirical quantification of the immediate and long-run impacts of recent Federal Reserve interest rate moves on farmland values. The authors demonstrate the long-lasting repercussions of Federal Reserve's policy choices in the farmland market.