Period Of Interest Rates Research Articles

Bonos verdes para financiar la inversión socialmente responsable: un análisis bibliométrico

Sustainable finance has grown in importance in recent years due to its close relationship with sustainable development and the estimated large investment needs. After a long period of near-zero interest rates, we have witnessed a change in the scenario in the last two years, so it is important to know how this may affect the transition to a sustainable economy. To approach this object of study and contextualize it, a bibliometric analysis is carried out, using the Web of Science database, on: sustainable finance, Socially Responsible Investment and green bonds. The evolution of publications, the most active countries, the most relevant institutions and authors, the most researched topics, the most cited articles and the relationship of these three areas with the Sustainable Development Goals have been analyzed, in order to try to detect trends, omissions and research opportunities. The analysis reveals that sustainable finance is highly associated with climate aspects and green bonds, that the performance of green bond portfolios and other sustainable financial assets is a widely researched issue, and that the European Union is very active in knowledge generation, also having a long history in this object of study, supported by both the regulatory and institutional framework, and driven by the European Green Deal presented by the European Commission in 2019 and the Action Plan against Climate Change of the European Central Bank in 2021.

The “effect modifier” of US interest rate in the economic policy uncertainties and economic conditions of fifty (50) US states: A semi-parametric smooth varying-coefficient approach

In this study, we investigate the relationship between economic policy uncertainty [EPU] and the economic conditions of the 50 US states, as well as the role of interest rates. We use a semi-parametric smooth varying coefficient model (SVCM) to examine how interest rate affects the nexus of EPU-economic conditions. Our findings suggest a negative relationship between EPU and economic conditions and that when the interest rate is around 3 %, the negative impact of EPU on economic conditions decreases in more than 60 % of US states. Furthermore, we find that the rate of change in the interest rate between 2 % and 3 % helps mitigate the negative effects of EPU and improves economic conditions in several states. Our results remain consistent across different interest rate periods, regardless of whether the uncertainty is of internal or external origin.

How Much Government Debt Is Now Acceptable for Russia?

The period of near-zero interest rates is over, and the recent noticeable growth in the debt burden, as well as in the cost of interest payments to service that debt, has made it more challenging for national and global financial regulators to strike a balance between keeping budgetary parameters stable and spurring economic development. This article proposes a “safe” threshold for the debt burden such that the ac-cumulated debt would not diminish prospects for growth and degrade fiscal sustainability. A significant negative linear effect of government debt on GDP growth rates from 1980 to 2021 has been observed for a total sample of 57 countries. According to the Hansen test, there are relatively safe thresholds for high- and middle-income countries at 56% and 24% of GDP, respectively. An assessment of the impact of government debt on the dynamics of interest expense indicates that there is a stable positive relationship between them. The conclusion drawn is that the thresholds beyond which an acceleration in the growth of interest payments would produce an increase in the debt burden stand at 51% and 29% of GDP, respectively, for the same groups of countries. However, the current conditions of unprecedented sanctions that restrict access to foreign borrowing together with a double-digit key interest rate were not taken into account for calculations based on the retrospective data. When those factors are included, the authors’ projections indicate that Russia’s safe level of debt should not exceed 20% of GDP.

User Cost of Housing Analysis of the German Real Estate Market

Background: This study looks at the development of the German real estate landscape, which recorded a continuous rise in prices between 2009 and 2022. These were due to a genuine excess demand, a shortage of supply and favorable financing conditions. In the course of 2022, mortgage rates then rose after a historically long period of low interest rates. Aim: This study aims in particular to assess whether the financial advantage of home ownership remains robust. The aim is to determine the relative attractiveness of home ownership compared to renting in all 401 German districts and independent cities. Methods: The owner-occupier costs are determined using the user cost of housing approach and compared with the current rental prices in the respective cities and districts. Various factors are taken into account, including the purchase price, financing costs, maintenance and rental prices. Results: The results of the analysis show that home ownership still offers a considerable cost advantage on average across Germany: In mid-2023, it is around 57% cheaper per square meter to invest than to rent. However, it is important to point out that this result does not take into account differences in the population’s ability to afford home ownership. Furthermore, the analysis raises questions about the sustainability of past house price growth and whether this increase is due to fundamental factors or low mortgage rates. In this sense, the study confirms that home ownership on the German real estate market remains economically favorable compared to renting, even with increased interest rates. It underlines how important it is to consider the long-term benefits for wealth accumulation when deciding between owning and renting. Practical relevance/social implications: The study is of practical relevance for people who rent an apartment or house in Germany and are considering whether it is sensible and economical for them to invest in property. The findings from the analysis are helpful for current purchasing decisions. Originality/value: It also offers original results and provides the reader with added value, as it captures and evaluates current real estate developments on the German market in a well-founded manner.

Exchange Rate Regime Choices in Small Open Economies from Bretton Woods to Inflation Targeting

After centuries of metallic monies, for a long time, our understanding of fiat money had remained rudimentary and often controversial. Successive regimes eventually failed. The end of the Bretton Woods system marked the moment when the link between fiat money and gold was severed and when the possibility of letting exchange rates float became possible. The small open economies adopted various arrangements. Informed by these experiments, the understanding of monetary policy substantially progressed, leading to the widespread adoption of the expected inflation-targeting strategy with similar inflation targets. As a result, exchange rate variability has declined. The US dollar dominance was maintained and even increased. Yet, new challenges have emerged. The long period of interest rates stuck at the effective bound effectively suspended the use of the strategy. Then, during the post-pandemic surge in inflation rates, inflation forecasts became highly imprecise.

Effect of Interest Rate on Customers’ Demand for Loans in Atiwa Rural Bank PLC, Ghana

This study sought to determine the influence of interest rate on demand for loans among Rural Banks in Ghana. The study adopts an explanatory design of the quantitative approach. Secondary data from the Atiwa Rural Bank PLC database was used. The data were analysed using frequencies and percentages. Also, binary logistic and linear regression were used in analysing the relationship among the key variables of this research. The study found that interest rate of Atiwa Rural Bank PLC was rated as moderate while repayment status was high. There were differences between the category of the respondents and the repayment status. More males repay their loans as compared to females and groups. Also, differences existed between the employment status of the respondents and the repayment status. Moreover, insignificant differences were identified between the employment status of the respondents and the repayment status. Interest rate affects loan period positively. Also, a strong positive correlation between interest rate and loan period was determined. Interest rate affects amount of facility negatively. Moreover, credit facility with high interest rate is 1.020 times more likely to default in paying back the credit facility as compared to respondents who obtained their credit facility as a moderate or low interest rate. Increasing interest rate was associated with low or default in repayment of credit facility. The study therefore, recommend that management of the Atiwa Rural Bank PLC put up measures to able to track and retrieve all small amount of facility or loans given to clients. Also, the management of the Atiwa Rural Bank PLC should target more salaried workers and loans used for emergency services such as medical bills, school fees among others in order to reduce Non-Performing Loans (NPL). Moreover, the management of the Atiwa rural bank should improve upon the mechanisms implemented regarding giving of group loans and repayment issues.

From Hero to Zero: The case of Silicon Valley Bank

This paper examines the factors contributing to the rapid collapse of Silicon Valley Bank, once regarded as one of the best banks. We show that the bank invested heavily in debt securities during a period of low interest rates, and the subsequent surge in interest rates in 2022 resulted in significant unrealized losses. Additionally, the bank's deposits were heavily concentrated among a small group of venture capitalists, which increased the likelihood of a bank run. Furthermore, the bank held less equity capital and had an inefficient risk management system, exacerbating the impact of the risk. Overall, the mismanagement of assets and liabilities led to the bank’s failure.

IMPLEMENTATION OF OJK REGULATIONS AND SUPERVISION IN THE COLLECTION OF DEPOSIT FUNDS AT BANKS

Collection of deposit funds is an important component in banking activities that supports the expansion of the financial industry by providing stability and confidence to depositors. The process of licensing and registering a bank as a body authorized to collect funds, as well as setting rules related to the interest rate period, and customer protection, are all part of the implementation of the Financial Services Authority (OJK). The purpose of this study is to examine how OJK is used and supervised when banks collect deposit funds at banks. The technique used is a literature review and analysis of regulations related to regulations and guidelines issued by the OJK to regulate and supervise the collection of deposit funds in banks.

Zombification in Poland in particular during COVID-19 pandemic and low interest rates

This article addresses the issue of corporate zombification in the case of listed companies in Poland. The purpose of this paper is to analyse financially vulnerable zombie firms from the listed non-financial companies in Poland, in particular, during the COVID-19 pandemic and the period of low interest rates.Data from 2000 to 2021 from the EMIS database on the financial statements of companies registered on the Warsaw Stock Exchange and NewConnect were used. In the process of research, such methods as local linear projection regression, logistic regression combined with the scoring methods were used.The results of the research show that the economic crisis caused by the coronavirus pandemic and the period of low interest rates have increased zombie firms among the listed companies in Poland. The anatomy of zombie firms differs significantly from the anatomy of non-zombie companies.The dynamics of financial indicators of zombie companies that appeared during the recession (Global Financial Crisis, the COVID-19 pandemic) and the period of low interest rates as in the period without a recession, show the ambiguity of the financial condition of these enterprises. For the survival of zombie companies, the most important indicator is their size. The continued existence of zombie firms also depends on leverage and profitability as the main financial indicators.

Which return regime induces overconfidence behavior? Artificial intelligence and a nonlinear approach

Overconfidence behavior, one form of positive illusion, has drawn considerable attention throughout history because it is viewed as the main reason for many crises. Investors’ overconfidence, which can be observed as overtrading following positive returns, may lead to inefficiencies in stock markets. To the best of our knowledge, this is the first study to examine the presence of investor overconfidence by employing an artificial intelligence technique and a nonlinear approach to impulse responses to analyze the impact of different return regimes on the overconfidence attitude. We examine whether investors in an emerging stock market (Borsa Istanbul) exhibit overconfidence behavior using a feed-forward, neural network, nonlinear Granger causality test and nonlinear impulse-response functions based on local projections. These are the first applications in the relevant literature due to the novelty of these models in forecasting high-dimensional, multivariate time series. The results obtained from distinguishing between the different market regimes to analyze the responses of trading volume to return shocks contradict those in the literature, which is the key contribution of the study. The empirical findings imply that overconfidence behavior exhibits asymmetries in different return regimes and is persistent during the 20-day forecasting horizon. Overconfidence is more persistent in the low- than in the high-return regime. In the negative interest-rate period, a high-return regime induces overconfidence behavior, whereas in the positive interest-rate period, a low-return regime induces overconfidence behavior. Based on the empirical findings, investors should be aware that portfolio gains may result in losses depending on aggressive and excessive trading strategies, particularly in low-return regimes.

Floating Rate Notes in High Rate Environment and the Stock Market Response

Previous study finds that the firms with inferior growth options tend to issue callable bonds. Typically, these firms are characterized by stock underperformance. Previous study also finds that the floating rate as a superior alternative to the call provision, which is restrictive, when the interest rates are likely to fall. We study the long-term stock performance of floating rate notes (FRNs) issuing firms, issued when the interest rates are high. Stock overperformance would suggest floating rate as a preferred choice by the firms with high growth options rather the call option. We find that the FRNs are generally investment grade with extremely rare presence of a call option. We perform the analysis using Buy and hold abnormal return (BHAR) as the proxy for the long-term stock overperformance/underperformance. A sample of floating rate notes issued (1654) from 1992 to 2007, a period of high interest rates, reveals significant overperformance by the floating rate notes issuing firms in the high-rate paradigm. High growth firms, in the high-rate environment, significantly benefit from the floating rate provision which is less restrictive and less costly than the call option, which typically provides call protection period and pays a call premium. Floating rate provision better mitigates the interest rate risk for the firms in the high-rate environment. We find that the smaller, high growth, higher leverage, less profitable firms with greater agency issues benefit more from issuing FRNs in the high-rate environment. Our study has relevance to the stock portfolio construction and performance. We also perform a comparative analysis using the sample of floating rate notes issued (270) during 2008 to 2018, a period of low interest rates, and find stock underperformance. The implications are that the call option likely is a better choice for the firm since the firm preserves the right to forego exercising the option.

A Transit Technology Selection Model

This paper presents an easy-to-use model to assist in technology selection for transit planning. The model computes annual costs for two technologies—currently BRT and LRT—for a system with characteristics specified by the user and from “real-world” operating data. The model computes the annualized capital and operating costs over a wide range of demand; it also calculates location-specific, energy-related emissions for both technologies’ operations. Most importantly, the model allows the user to test the sensitivity of the technology selection result to nearly all inputs. The model is applied to a recent case in Waterloo, Ontario, Canada, to verify its functionality. The results show that, economically, these two technologies result in very similar annual costs for “normal” demand levels. As a result, small changes in assumed input values for period of evaluation, interest rates, labor costs, and infrastructure costs can result in a change in recommended technology.

A comparative study on determinants of housing mortgage prepayment of individual borrowers

This paper examines how the macroeconomic environment affects the determinants of prepayment of mortgage loans from October 2004 to February 2020. For more accurate analysis, the authors define the timing of prepayment not only before the loan maturity but also at the time when 50% or more of the loan principal is repaid. The results show that, during the global financial crisis as well as the recent period of low interest rates, macroeconomic variables such as interest rate spreads and housing prices have a different effect compared to the normal situation. Also, significant explanatory variables, such as debt to income (DTI) ratio, loan amount ratio and poor credit score, have different effects depending on the macroenvironment. On the other hand, in all periods, the possibility of prepayment increases as comprehensive loan to value (CLTV) increases, and the younger the age, the shorter the loan maturity. The results suggest that, in the case of ultralong (40 years) mortgage loans recently introduced to support young people purchasing houses, the prepayment risk can be, at least partially, migrated by offsetting the increase in prepayment by young people and the decrease in prepayment due to long loan maturity. In addition, this study confirms that the accelerated time failure model compared to the logit model and COX proportional risk model has the potential to be more appropriate as a prepayment model for individual borrower analysis in terms of the explanatory power.

APPLICATION OF CUSTOMER LAPTOP LOAN INSTALLMENTS BASED ON THE EFFECTIVE AND FIXED INTEREST RATE METHOD

Financial institutions (finance) are currently growing rapidly by providing various kinds of attractive credit facility promotions to their customers. The public can take advantage of this financing service, if the administrative requirements are complete. Credit promotions are given to customers in the form of a list of installments with varying interest according to the desired amount of credit for each installment period. This study aims to determine the application of mathematical concepts by using the annuity interest rate system and sliding rate as well as flat interest rates. The data analysis model used in this study is an exploratory method and the data collection is secondary data by taking several price list brochures of six ( 6) brands of laptops from various types and three (3) financial institutions (finance). The data obtained are down payment (DP), interest rate (i), insurance costs, administrative costs and credit installment period. After the data is obtained, then the analysis and calculation is carried out with the following steps: (1) Performing the calculation of flat interest, annuity interest and sliding rate interest; (2) Calculation of monthly installments on annuity and sliding rate. Based on the results of data processing , it is found that the greater the loan value, the smaller the interest rate charged to consumers and the longer the payment period, the smaller the interest rate charged to consumers. The results of this study, concluded that The payment system that is more profitable for the finance party is the flat interest rate system, while the system that is best used for the customer is the effective interest rate system, namely the sliding rate system . This system, gives customer interest relief decreased. However, if the customer wants to pay off early, the sliding rate and flat interest rate system is more profitable for the customer. While the annuity interest rate uses declining interest, the amount of interest earned is greater than the sliding rate interest The principal installments are getting bigger and bigger

Interest rate shocks, competition and bank liquidity creation

We study the effects of interest rate shocks (IRS) on banks’ liquidity creation. A unique supervisory data set from the Deutsche Bundesbank allows identifying banks’ liquidity creation for the real economy and the effects of banking market competition. Here, we employ a novel approach to account for IRS that are both unexpected and effective for a bank’s business model. We find that higher individual pricing power in the market lowers banks’ liquidity creation, which is in line with theory that monopolistic firms undersupply the market when utilizing their high pricing power in the bank competition–liquidity creation nexus. While positive IRS per se lead to an increase in bank liquidity creation, we find that a high bank-individual pricing power curbs this impact on liquidity creation significantly. Moreover, we show that monetary policy was most effective during the global financial crisis and for well-capitalized banks, whereas periods of low interest rates are characterized by the persistent increase in liability-side liquidity creation.

A prolonged period of low interest rates in Europe: Unintended consequences

AbstractWe examine the potential adverse effects of a prolonged period of low interest rates on financial stability from multiple perspectives. First, we provide a unique comparison of natural rates of interest estimated using two approaches—with and without financial factors—for six large European countries inside and outside the euro area. Second, we provide a comprehensive review of the empirical literature, allowing us to identify and categorize financial vulnerabilities, which may be created and fueled by low interest rates. Third, we discuss a situation in which a prolonged period of low interest rates may lead to a point of no return by contributing to higher indebtedness, overvalued asset prices and underpriced risks, resource and credit misallocation, and lower productivity. With respect to all of that, we offer a few monetary policy considerations. Specifically, we suggest that (i) monetary policy should act symmetrically over the medium to long term, (ii) both the short‐term and long‐term costs and benefits of pursuing accommodative or restrictive monetary policy should be accounted for, and (iii) monetary and macroprudential policies need to be coordinated, and their interactions should be accounted for in order to find the best policy mix for the economy.

Factors affecting farmers' access to formal financial credit in Basona Worana District, North Showa Zone, Amhara Regional State, Ethiopia

This study examines the factors affecting farmers’ access to formal credit in Basona Worana District, North Showa Zone, Amhara Regional State, Ethiopia. The study used cross-sectional data while conducting a survey. It was conducted from November 2019 to June 2020 G.C. A multistage random sampling technique was used, and 299 smallholders’ farmers were selected and fully took part in the survey. Quantitative data were collected using a structured questionnaire to identify the main factors of formal financial credit access. Of the total 299 participants, only 72 (24.1%) took formal financial credit from lending institutions. The data were analyzed by descriptive statistics and logistic regression analysis. The regression result reveals that age, sex of household head, family size, extension contacts, off-farm income, interest rate, lending procedure, group lending and Rapid Repayment Period are the main determinant factors that affect formal financial credit access at the household level, and these variables are found to be statistically significant at 1 % and 5 % levels of precision. On the other hand, the other remaining variables like education status, attitude towards credit risk, experience on credit use, farm land size, livestock ownership and distance from lending institutions are found to be statistically insignificant. Thus, policy makers should work to improve credit service supply and amount of credit and assist smallholders to invest the credit on their farming. Lending institutions should revise their group lending system, interest rate, lending procedure and rigid repayment periods.

State-Dependent Effects of Monetary Policy: The Refinancing Channel

This paper studies how the impact of monetary policy depends on the distribution of savings from refinancing mortgages. We show that the efficacy of monetary policy is state dependent, varying in a systematic way with the pool of potential savings from refinancing. We construct a quantitative dynamic life-cycle model that accounts for our findings and use it to study how the response of consumption to a change in mortgage rates depends on the distribution of savings from refinancing. These effects are strongly state dependent. We also use the model to study the impact of a long period of low interest rates on the potency of monetary policy. We find that this potency is substantially reduced both during the period and for a substantial amount of time after interest rates renormalize. (JEL D15, E21, E43, E52, G21, G51, R31)

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.

Extension of capital budgeting techniques using interval-valued Fermatean fuzzy sets

Capital budgeting requires dealing with high uncertainty from the unknown characteristics of cash flow, interest rate, and study period forecasts for future periods. Many fuzzy extensions of capital budgeting techniques have been proposed and used in a wide range of applications to deal with uncertainty. In this paper, a new fuzzy extension of the most used capital budgeting techniques is proposed. In this content, first interval-valued Fermatean fuzzy sets (IVFFSs) are defined, and the algebraic and aggregation operations are determined for interval-valued Fermatean fuzzy (IVFF) numbers. The formulations of IVFF net present value, IVFF equivalent uniform annual value, and IVFF benefit-cost ratio (B/C) methods are generated. To validate the proposed methods, proposed formulations are illustrated with a hypothetical example, and the results are compared with classical fuzzy capital budgeting techniques.