Interest Rates In Countries Research Articles

Foreign exchange interventions and monetary policy: evidence from emerging economies

Abstract The role of foreign exchange interventions in monetary policy conduct is an ongoing debatable issue, especially in inflation-targeting emerging economies, where monetary authority can follow other targets rather than price stability. This paper examines whether interventions in foreign exchange markets affect the setting of interest rates in countries where price stability is the main target of monetary policy. We used the ARDL model to investigate the matter of the intervention policy as well as its asymmetric impacts on monetary policy. The results provide evidence of the significant effect of foreign exchange interventions on monetary policy in inflation-targeting emerging economies, implying the existence of fear of floating. Particularly, interest rate changes can mitigate or accommodate the intervention policy, depending on countries. Furthermore, the interventions have asymmetric effects on monetary policy, showing the bias toward sales interventions. While sales interventions play a more pronounced effect in most emerging economies, excepting for Mexico where purchase intervention effect is of more importance.

Declining real interest rates: The role of energy prices in energy importers

This study investigates whether the upward trend in real energy prices since the 1990s can account for the decreasing trend in real interest rates in energy-importing countries. By estimating dynamic panel data models, I first provide empirical evidence that a rise in real energy prices leads to falls in real interest rates and aggregate consumption in energy-importing OECD member countries. Using a life-cycle model, I show that the increasing trend in real energy prices decreased the equilibrium real interest rate by about 1.4 percentage points between 1990 and 2018. The mechanism for this effect is as follows: As a result of the increases in the real energy price, energy consumption falls, dampening the consumption of manufactured goods because of the complementarity in consumption between energy and manufactured goods. Accordingly, aggregate consumption declines, putting downward pressure on the real interest rate. Moreover, the increased real energy price decreases energy input in production, raising the capital/energy ratio and inducing a lower real interest rate via a fall in the marginal product of capital. Through a simulation, I also demonstrate that increases in the real energy price had a greater influence on the declining real interest rate in energy-importing countries during 1990–2018, compared to population aging.

A Review of Gold Pricing: Real Interest Rate and U.S. Dollar Index

This paper explores key factors that could indicate the price of gold, with a specific focus on the real interest rate and the United States Dollar Index (USDX). By analyzing existing literature and historical events, this paper establishes the real interest rate as the primary driver of the price of gold and concludes that it could be used to predict future gold prices. As many existing studies purpose a negative relationship between the price of gold and USDX, this paper goes on to examine this relationship while considering the real interest rate. This paper purposes that the change in the U.S. real interest rate, relative to real interest rates in other countries, exhibits a positive correlation with the USDX. The real interest rate emerges as a key influencer for both the price of gold and USDX, potentially providing an explanatory framework for the relationship between the two. The finding of this paper is significant for researchers and investors seeking to predict future gold prices and study the relationship between the price of gold and USDX.

Heterogeneous international monetary transmissions: The role of inflation

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

Revisiting the debate on the Eurozone crisis: causes, clustering periphery and core, and the role of interest rate convergence

ABSTRACT Explaining the Eurozone crisis requires explaining the origins of the external imbalances until then. The paper divides the literature arguments into three ”fundamental causes”, not mutually exclusive: a competitiveness problem, North-South flows, and excess of public and/or private spending. Within each of these causes, we find divergences between authors in the literature and identify a set of variables correlated with the accumulation of external imbalances before the crisis. These variables help to create clusters of Eurozone countries and separate core countries from the periphery. We then develop an original argument, that the convergence of nominal long-term interest rates in the periphery cluster countries, relative to the core cluster countries, between 1996 and 2007, was the trigger for the three ”fundamental causes” mentioned. We find Granger-causality between this convergence and subsequent (after four quarters) annual variations in the quarterly current account balance.

Contemporary trends on global corporate ESG bond market

Aim. The presented study aims to identify current trends in the global corporate bond market with environmental, social, and management objectives of the issuance of ESG bond and to assess the prospects for their development.Tasks. The author analyzes the segments of the global ESG bond market; determines the causes of the emerging trends and their impact on the state of global ESG financing.Methods. This study uses general scientific methods of cognition, in particular induction and deduction, synthesis, comparative and retrospective analysis. The fundamental regulatory documents of ESG bond taxonomy are investigated, and statistics from representative sources are analyzed. The latter include International Capital Market Association, SPGlobal, Barclays, Goldman Sachs, Refinitiv, and Climate Bond Initiative.Results. Based on the conducted research, the reasons for the active growth in 2021 and the slowdown in the development of the global ESG bond market in 2022 are established, and its short-term prospects are assessed. The prospects are systematized according to ESG bond varieties. Analysis of the mutual influence of global trends on the state of the global ESG bond market indicates the prevalence of external factors.Conclusions. According to the results of the analysis, the ESG bond toolkit seems to be investment-relevant. In 2022, major discussions regarding global ESG debt revolved around market quality and potential greenwashing. Intensive measures are taken in these areas at the macro and micro levels. The volume of ESG bond issuance in 2023 should be restored as interest rates in developed countries stabilize and global inflation rates decrease. Experts remain positive in their expectations and forecasts for 2023, but the quality of green bond and bond related to sustainable development is alarming.

NONLINEAR AND TIME-VARYING HETEROGENEITY OF THE SPATIAL EFFECT OF G20 COUNTRIES’ MONETARY POLICIES

This study examines how nonlinear and time-varying heterogeneity of the spatial spillover effects of price-based and quantitative monetary policy instruments affect G20 countries’ economic growth by building spatial panel smooth transition models with a trade geography weight matrix. We find spatial dependence between economic growth and monetary policy in G20 countries. Then, we use G7+Spain and BRICS to represent developed and emerging economies, respectively, and re-estimate the spatial fixed effect. G7 countries’ quantitative monetary policy is not significant, and reduced interest rates do not improve GDP; however, both increased money supply and reduced interest rates improve BRICS countries’ GDP. Furthermore, lower interest rates in G7 countries cannot improve GDP during bad times, but during good times, price-based monetary policy effectiveness is improved. Although economic conditions do not affect BRICS countries’ quantitative regulation, they do influence price-based monetary policy’s effects. Neighboring countries’ price-based regulation brings different degrees of spillovers to domestic GDP using both linear and nonlinear models.

Currency carry trades and global funding risk

We measure funding constraints in currency markets by deviations in the covered interest rate parity and funding risk by the standard deviation of the magnitude of the funding constraints. Empirically, funding risk is driven by financial sector conditions in the low interest rate countries, oil price, and the actions of the main central banks. Since 2008, funding risk has affected currency carry trading activity, carry trade returns, correlation between carry trade long and short currencies, relative equity returns, and the economic growth in the carry trade long and short countries. We develop a theory of currency markets under funding constraints to explain the phenomena. The model has additional testable implications: For instance, as funding constraints start to bind, it predicts that both the investment and the funding currencies crash relative to a safe asset. This result is observable empirically when we use gold to proxy for the safe asset.

Techno-economic strategies for improving economic viability of β-carotene extraction using natural oil and supercritical solvent: A comparative assessment

Dunaliella salina microalgae is a third-generation feedstock that is both thermophilic and halophilic and can be used to produce nutritious food supplements such as β-carotene. Although several techno-economic studies have been carried out to produce the pigment, most of them considered traditional synthetic chemicals such as hexane, acetone, and petroleum ether as solvents for extracting β-carotene from D. salina. In this study, techno-economic assessment is carried out with the aim of producing food-grade products for human consumption via greener methods of D. salina cultivation, harvesting, and extraction. The techno-economic assessment of the extraction of β-carotene and by-products using natural and edible corn oil and supercritical CO2 reveal that the processes are economically feasible, with a payback time of 5.9 y and 2.7 y (for corn oil and SC-CO2 methods), respectively. The ROIs for both methods are also positive, that is, 16.9 % and 37.1 %, respectively and greater than the prevailing interest rates in most countries. Sensitivity analyses show that the payback time is most sensitive to the yield of β-carotene, its production output, and its selling price. This assessment shows that food-grade β-carotene can be produced in bulk quantity from D. salina (as an alternative to other sources such as carrots, tomatoes, pumpkins, etc.) in order to satisfy the growing demands of nutritional markets.

MIST Ülkelerinde Tüketici Güveninin Sermaye Piyasalarına Etkisinin İncelenmesi

Bu çalışmanın amacı MIST (Meksika, Endonezya, Güney Kore ve Türkiye) ülkelerinde yatırımcı duyarlılığını temsil eden tüketici güven endekslerinin sermaye piyasaları ile ilişkisini ve bu ilişkinin yönünü incelemektir. Çalışmada 2010 Haziran – 2020 Şubat dönemi ele alınmıştır. Eş bütünleşme testi ile, MIST ülkelerinde tüketici güven endeksleri ile ülkelerin gösterge borsa endeksleri ve 10 yıllık gösterge tahvil faiz oranları arasında eş bütünleşme ilişkisinin olduğu sonucuna ulaşılmıştır. Elde edilen bu bulgu, MIST ülkelerinde tüketici güven endeksi ve sermaye piyasalarının uzun dönemde birlikte hareket ettiğini göstermektedir. Değişkenler arasındaki kısa dönemli ilişki araştırıldığında ise Endonezya ve Türkiye’de tüketici güveni ve sermaye piyasaları arasında anlamlı kısa dönemli ilişki tespit edilmiştir. Nedensellik analizi ise bu ilişkilerin yönünün Endonezya ve Türkiye’de tüketici güven endeksinden 10 yıllık tahvil faiz oranlarına; Meksika ve Endonezya’da tüketici güven endeksinden borsa endeksine; Güney Kore’de ise tüketici güven endeksinden borsa endeksine ve borsa endeksinden tüketici güven endeksine doğru olduğu belirlenmiştir. Yükselen ekonomiler arasında gruplandırılan MIST ülkelerinde tüketici güveninin sermaye piyasalarını etkilediği sonucuna ulaşılmıştır.

Taming the Global Financial Cycle: Central Banks as Shock Absorbers in the First Era of Globalization

The Classical Gold Standard period, with high capital mobility and fixed-exchange rates, is usually seen as the extreme case of international constraints on monetary policy. Contrary to this view, we show how central bank balance sheets offset the effects of international shocks on domestic interest rates. In contrast, in the United States, a gold standard country without a central bank, the reaction of money market rates was two to four times stronger than that of interest rates in countries with a central bank. Our study is based on the monthly balance sheets of all central banks in the world (i.e., 21) from 1891–1913.

Regional Cooperation and Economic Integration: Recent Evidence from ASEAN

The Asian financial crisis in 1997/98 and the global financial crisis in 2007/8 suggest that more research on economic integration is needed. This study aims to examine the depth and path of integration in the real and financial sectors among ASEAN member states during 1999-2019. The Augmented Dickey-Fuller–Generalised Least Squared (ADF-GLS) test results show stronger evidence of ASEAN real sector integration than its financial sector. Further, time lag analysis shows that the adjustments of interest rates in ASEAN countries are slower than those of price levels in the real economy. Academic and policy implications of the findings are provided, mainly on the need for stronger cooperation in ASEAN’s financial sector.

Problems of estimating the neutral interest rate: conclusions for Ukraine

Estimation of the actual and projected level of the neutral interest rate is a central issue in the application of modern monetary theory in the practical context of monetary policy. Views on the role and key drivers of neutral interest rates have evolved over time in parallel with the development of the theory of capital, money, credit and economic growth. Therefore, the paper is aimed at generalizing methods for assessing the neutral interest rate for open economies with emerging markets and formulating recommendations for improving the existing methodological tools for estimating the neutral rate in Ukraine. To achieve this goal, theoretical sources, advisory and research materials of international organizations, central banks and statistical databases were analyzed. It is established that the key issue of the current discussion about the tools for estimating the level of neutral interest rates in countries with small open economies is the relationship between the effects of external and internal factors. The paper identifies the advantages and disadvantages of the method for estimating the level of the neutral rate on the basis of uncovered interest parity rule used by the National Bank of Ukraine within the semi-structural macroeconomic model. The expediency of methodological tools introducing into the practice of monetary regulation of Ukraine for estimating the neutral rate of Ukraine based on the Laubach-Williams approach has been proved with adaptation to the conditions of an open economy, which will consider сinternal factors of economic development – changes in potential GDP and savings.

Neutralizing currency risk in procurement via hedging

The article discusses the concept of currency risk arising in foreign trade procedures and defines currency risk types: operational, translational, economic and hidden risks. The main factors influencing exchange rate are determined: level of inflation, interest rates in different countries, state of current accounts, amount of public debt, terms of trade and political stability. Methods of assessing currency risk using the Value-at-Risk methodology are presented: historical modeling, variancecovariance model, Monte Carlo modeling. Exchange-traded and overthe-counter currency risk management tools, such as options, futures, forwards, swaps, debt contracts, and natural hedging methods, are described in detail. Practical examples of using these tools to neutralize currency risk are also given.

Nominal and real interest rates in OECD countries, changes in sight after covid-19?

In this article we seek to gain a better understanding of the decline in interest rates observed over the long term and we ask whether this trend is likely to stop or even reverse as a result of the covid crisis. For this, we introduce a model that combines an intertemporal framework and a price adjustment process. This model makes it possible to derive a testable relationship between observable macroeconomic variables. Tests carried out on a panel of 19 OECD countries confirm the influence of factors suggested by the theoretical model, in particular, the link between the fall in the interest rate and the economic slowdown. The covid episode is analyzed as a mixed shock of supply and demand. The exit from the covid crisis could be accompanied by a rebound, but rising real interest rates are not the most likely scenario.

Hong Kong’s Currency and Monetary Policy

This literature review is a synopsis of what has been written on the currency and monetary policy of Hong Kong since its relinquishment from Great Britain in 1999. In particular, this paper examines the role and policies of the Hong Kong Monetary Authority, the island province’s equivalent to a central bank. Since Hong Kong does not have a central bank per se, it is interesting to note how the money supply is created and maintained, and what its relationship is to mainland China. This institution makes Hong Kong unique among developed economies, which typically have a central bank that oversees monetary creation and policy. The Literature Review is composed of two parts: Part One will cover the revaluation of the Hong Kong Dollar with regard to its value relative to the currencies of China, Japan, Europe, and the United States, particularly during financial crises. This part of the literature review will cover the work of Chan (2002), Schenk (2004), Shah (1996), Cook and Yetman (2004), and Ma and Cheng (2014) as they use different measurement methods to monitor the change in the Hong Kong Dollar’s value over time, especially compared to the period before the creation of the Hong Kong Dollar. Part Two will cover the monetary and macro-economic policies and currency board effectiveness of the Hong Kong Monetary Authority in sustaining the value of the Hong Kong Dollar. This part of the literature review will cover the work of Chen (2001), Siregar and Walker (2000), Chen and Tsang (2020), Funke and Paetz (2000), and Huang and Shen (2017). This paper also includes a section on suggestions for future research, including what effect the shift of pegging the Hong Kong Dollar (HKD) to other currencies, such as the Euro or the Japanese Yen, or when interest rates in other countries are set at zero. The paper wraps up with an overview of the literature discussed and possible paths going forward, including recreating the studies over time to see how effective such a maneuver has been in practice when compared to competing currencies. Followers of the Hong Kong Dollar will especially find these results useful as they seek to exchange currencies for the highest value.

Monetary Hegemony and its Implications for Small, Open Economies

The paper uses historical data on interest rates from 1920 to 2016 to explore whether a world rate of interest exists and whether a monetary hegemon affects it. The first principal component of long-term interest rates accounts for 75% of the variation in a matrix of 17 countries and proxies for the world rate of interest. The U.S. played the role of a hegemon, influencing long-term bond rates. After the introduction of the euro in 1999, interest rates in most European countries followed German interest rates but German rates followed U.S. rates even more than before the introduction of the euro. In two countries on the northern periphery, Denmark and Sweden, interest rates shadow German rates and the low rates have contributed to rising house prices and rising mortgage debt. Independent monetary policy calls for targeted controls on capital flows.

The effects of negative interest rates on cash usage: Evidence for EU countries

Changes in interest rates below the zero lower bound could have potential effects on the payments market by making cash more attractive for consumers as a medium of payment and wealth storage. This paper studies how cash usage has been affected by the recent introduction of negative interest rates in European countries. Using a difference-in-differences methodology over the period 2006–2018, results show an increase in cash usage in negative interest-rate environments. We also find that the increase in cash usage was less pronounced in countries with superior monitoring capacity of banks (i.e. high levels of financial intermediation).

US-China Trade War: Speculative Saving Perspective

The persistently remarkable bilateral imbalance of the current account has been argued to have triggered the US-China Trade War. Speculative saving can simultaneously explain both global and domestic imbalances by clarifying why the U.S. undersaves (overconsumes), while China oversaves (underconsumes), when facing a bubble. Speculative saving occurs when households predict a bubble. With(out) borrowing constraints, households over-(under-)save due to the expected net capital gain from the bubble, and the saving rate increases (decreases) with bubble growth but decreases (increases) with interest rates. Oversaving arises in a closed economy due to resource constraints, while undersaving can occur in the U.S. because the U.S. dollar can be financed by other countries, such as China. Hence, restraining the ongoing housing bubbles and increasing the interest rates in both countries, as well as replacing the U.S. dollar with a new world currency, would mitigate the imbalances and thus relax or end the tension arising due to the trade war.

Emerging economy business cycles: Interest rate shocks vs trend shocks

The recent literature studying the source of business cycles in emerging market economies (EMEs) has debated the relative importance of productivity trend shocks versus interest rate shocks coupled with financial frictions. The studies in which an important role is assigned to interest rate shocks do not force their models to match the historical paths of the world or country interest rate. We show that this leads to poorly identified interest rate shocks and inaccurate measures of contributions of shocks to EME business cycles. To address this issue, we estimate a small open economy model for Argentina and Mexico using Bayesian methods where the world and country interest rate series in the model are forced to match their data counterparts. This estimation strategy results in larger variations in interest rate shock and, therefore, shifts explanatory power away from trend shocks towards interest rate shocks, although both shocks remain important.