Interest Rate Research Articles

Effects of Interest Rate Change on Private Sector Investment, Evidence From Pakistan

This study examines the effects of lending rates, inflation, and exchange rate fluctuations on private sector credits (PSC) in Pakistan from 1961 to 2017. The analysis shows that lending rates have a minimal impact on PSC, with an insignificant relationship. However, inflation and exchange rates show significant negative effects, indicating that rising prices and currency depreciation reduce private sector borrowing by increasing costs and uncertainty. These findings suggest that while interest rate management remains important, policymakers should prioritize strategies for stabilizing inflation and exchange rates to support private sector investment. Consequently, fostering macroeconomic stability may mitigate the indirect effects of the crowding-out phenomenon, promoting a favorable investment environment conducive to private sector growth.

Detecting the Influence of ETF Performance – A Case Study of China

As international capitals keep flowing into Asia, in particular China, it experienced rapid development on both economy and financial market during the last three decades. While more and more financial products are introduced, the government also loosens the leash on investment, so that the approaches to investment in the Chinese market are diversified enough to attract more and more investors to invest in it. This study will thus explore in depth what have affected Chinese ETF performance. For empirical analysis, the daily data on total ETF transactions and related economic indices during a period from February 24, 2005 to December 31, 2015 were used with multiple regression models. Our findings indicated that the amount of international capital inflow to China, the stock market, and interest rates affected the investment performance of Chinese ETFs.

Шляхи залучення фінансових ресурсів державними банками для відбудови економіки України

Introduction. The analysis of the availability and quality of financial resources involves identifying sources of funding, established practices of state-owned banks, international programs and funds, criteria for ensuring the quality and sustainability of reconstruction, urgent needs for funding and its availability, ensuring the participation of economic actors in the planning and monitoring of reconstruction programs, accountability mechanisms and ensuring economic, social and environmental sustainability. Problem Statement. The need to expand the sources of term resources on local and international markets, and to distribute them through a system of financial partnerships between state-owned banks and authorized financial organizations to support small and medium-sized businesses, requires coordinated actions among all stakeholders. Although households' long-term funds account for only a small share of the overall financing structure, they are becoming increasingly important in the context of globalization, especially in view of economic recovery and political stability. The purpose is to examine the volume, dynamics and structure of sources of funds raised by state-owned banks in the local market for the purpose of rebuilding Ukraine's economy. Methods. The study used a systematic approach, the principles of systematization of statistical and analytical data, graphical analysis, scientific synthesis, induction and deduction. Results. The article analyzes the volumes, dynamics and structure of attracting credit resources by state-owned banks in partnership with authorized financial organizations, in particular through the loan programs of the Entrepreneurship Development Fund (EDF) and the NBU's refinancing programs for commercial banks. It was found that the amount of resources attracted from the EDF is insignificant compared to the loan portfolios of state-owned banks. To access the EDF loans, state-owned banks invest in government debt instruments (government bonds), which is inefficient in terms of supporting economic recovery, as high interest rates on such instruments cause liquidity to flow into government debt obligations, which puts pressure on the state budget and additional default risks for issuers of such securities. Special attention in the study is paid to the analysis of the dynamics of customers' term deposits by banking groups, including state-owned and private banks, as well as banks with foreign capital. The dynamics of attracting funds from individuals and legal entities of state-owned banks in comparison with large private banks and banks with foreign capital is presented. This made it possible to assess how successfully banks maintain their liquidity and retain customer confidence. Conclusions. In times of war, state-owned banks play a key role in stabilizing the financial system. Business support programs, social payments, and government guarantees have made these banks important to customers, which explains the significant growth in deposit portfolios in 2023-2024. The volume of bank refinancing (collateral, terms, purpose) indicates a change in the NBU's strategy aimed at reducing banks' dependence on the central bank and moving to more market-based liquidity mechanisms. The gradual integration of Ukraine into the EU opens up prospects for state-owned banks to access large-scale and cheap financing under targeted programs, so it is advisable to orient the banks' resource policy towards the relevant mechanisms. In times of war and global uncertainty, state and international guarantees are an important tool for attracting additional financial resources. At the same time, this tool is used to a limited extent. Among the state-owned banks, only Ukreximbank has received direct guarantees from the Ukrainian government to secure creditors' claims. It is necessary to consider the possibility of attracting guarantees from international organizations as a less burdensome and more effective tool for expanding and reducing the cost of funding.

Pricing and Financing Strategies in a Dual-Channel Low-Carbon Supply Chain for Bilateral Capital-Constrained Retailers

In the context of low-carbon economy, financial constraints are prevalent among both upstream and downstream enterprises, exacerbated by the trend of online retailers extending into offline physical stores. This study first proposes and evaluates three financing combination models: “bank lending + advance payment,” (in short, AF), “bank lending + delayed payment,” (in short, DF), and “bilateral bank lending.” (in short, TF). It then examines the retailer’s dual-channel supply chain pricing and financing decision-making models under unified pricing strategy and independent self-pricing strategy respectively. The evaluation results indicate that among various financing models, the independent self-pricing strategy has the potential to enhance the retailer's profitability, outperforming the unified pricing strategy. In addition, when channel preference is significant, the retailer should prioritize the independent self-pricing strategy. A comparison of the optimal decisions across the three financing combination models indicates that both the cost coefficient of carbon emission reduction and the loan interest rate exert a limiting influence on the decision-making and income of all supply chain parties. Furthermore, the DF model emerges as a financing equilibrium strategy within the supply chain, with a shift to the AF model being considered only when the manufacturer’s loan interest rate is relatively high.

Basic Concepts of Stock Option Pricing Models Traded in the Capital Market

An option, in the world of capital markets, is a right based on an agreement to buy or sell a commodity, financial securities, or a foreign currency at an agreed price at any time within a three-month contract period. Factors that determine the value of an option include the current price of the stock, intrinsic value, expiration time or time value, volatility, interest rate, and cash dividends paid. Some options pricing models use this parameter to determine the fair market value of an option. This paper aims to learn the basic concepts of option pricing. The method used in studying the pricing of options is a literature review, which is an activity to collect scientific data, especially in the form of theories, methods, or research that has been carried out previously, either in the form of books, manuscripts, journals, and others that already exist in the library. Based on the results of the study, concepts, scientific findings, and method innovations that have been achieved previously are obtained, which are very relevant and useful for understanding the determination of stock option prices. An option, in the world of capital markets, is a right based on an agreement to buy or sell a commodity, financial securities, or a foreign currency at an agreed price at any time within a three-month contract period. Factors that determine the value of an option include the current price of the stock, intrinsic value, expiration time or time value, volatility, interest rate, and cash dividends paid. Some options pricing models use this parameter to determine the fair market value of an option. This paper aims to learn the basic concepts of option pricing. The method used in studying the pricing of options is a literature review, which is an activity to collect scientific data, especially in the form of theories, methods, or research that has been carried out previously, either in the form of books, manuscripts, journals, and others that already exist in the library. Based on the results of the study, concepts, scientific findings, and method innovations that have been achieved previously are obtained, which are very relevant and useful for understanding the determination of stock option prices.

Calculation of Life Insurance Premiums with Markov Chain Applications for Patients with Pulmonary Tuberculosis Disease in Indonesia

This study aims to calculate the premium for Long Term Care (LTC) insurance on Annuity as A Rider Benefit products with a multi-status model. Pulmonary Tuberculosis is one of the major infectious diseases that contribute significantly to morbidity and mortality rates. Therefore, it is necessary to calculate insurance premiums that consider the health risks of sufferers. In this study, Markov chains are used to model the health status transition of individuals with Pulmonary Tuberculosis over time, considering several health states, such as healthy, sick, and dead. Tuberculosis epidemiological data in Indonesia is used to estimate the transition probabilities between health states. The case study used in this research is a 35-year-old man who participates in LTC insurance with a coverage period of 5 years. It is known that the value of compensation when a person dies is IDR 100,000,000. The interest rate used is 5%. The calculation results obtained annual premium for LTC insurance on Annuity as A Rider Benefit product is Rp294,333. Then the calculation of the annual net premium of this insurance is also calculated based on age and gender. When age increases, the premium will be greater, this is influenced by the greater chance of death when age increases. In addition, based on gender, it is found that the male premium is more expensive than the female gender. This is influenced by the chance of death of men is greater than women.

Green gains: The impact of REITs' environmental performance on sustainability-linked loan interest rates

This paper examines the relationship between environmental performance and the use of sustainability-linked loans (SLLs) by U.S. real estate investment trusts (REITs). We find that a 1 % reduction in past carbon emissions increases the REITs' likelihood of taking an SLL by 29.6 %, while a 1 % slower growth in past emissions reduces the interest spread by 1.6 basis points. Our results reveal that banks reward REITs' previous environmental record through SLLs, whereas non-SLL interest spreads remain unaffected. These findings underscore the importance of explicit sustainability-linked financial instruments in incentivizing decarbonization efforts within the real estate sector.

Dampening the Financial Accelerator? Direct Lenders and Monetary Policy

AbstractDirect lenders, nonbank credit intermediaries with low leverage, have become increasingly important players in corporate loan markets. In this paper, we investigate the role they play in the monetary policy transmission mechanism, using U.S. dollar syndicated loan data covering the 1997–2018 period. We show that direct lenders are more likely to join loan syndicates whenever monetary policy announcements trigger a contraction in borrowers' net worth irrespective of the directional change in interest rates. Thus, our findings suggest that direct lenders dampen the financial accelerator channel of monetary policy.

Micro Risks and (Robust) Pareto-Improving Policies

We provide conditions for the feasibility of robust Pareto-improving (RPI) policies when markets are incomplete and the interest rate is below the growth rate. We allow for arbitrary heterogeneity in preferences and income risk and a wedge between the return to capital and bonds. An RPI improves risk sharing and can induce a more efficient level of capital. Elasticities of aggregate savings to changes in interest rates are the crucial ingredients to the feasibility of RPIs. Government debt may complement rather than substitute for capital in an RPI. Our analysis emphasizes the welfare-improving qualities of government bonds versus explicit redistribution. (JEL D52, E43, E62, H20, H63)

Inklusi Keuangan dan Efektifitas Kebijakan Moneter : Studi Kasus Negara Indonesia dan Malaysia

Financial inclusion, defined as access and use of formal financial products and services by individuals and companies, has become a major focus in Indonesia and Malaysia in recent years. Authorities in both countries have implemented various policies and programs to increase financial inclusion, hoping to provide economic benefits, namely reducing inflation. The aim of this research is to analyze the influence of financial inclusion, exchange rates, interest rates, broad money, and GDP on inflation in Indonesia and Malaysia. The data used in this research is secondary data ranging from the period 2013Q1 to 2022Q4. The analytical method used in this research is the Vector Error Correction Model (VECM). The conclusion of this research states that the financial inclusion variable has a negative influence on inflation in Indonesia with a VD contribution at the end of the period of 29.37%, while in Malaysia Financial Inclusion has a positive influence on inflation with a VD contribution at the end of the period of 11.22% . The exchange rate negatively influences inflation in Indonesia and Malaysia with VD contributions at the end of the period of 1.28% and 3.87% respectively. Interest rates have a negative influence on inflation in Indonesia with a VD contribution at the end of the period of 1.71%, while in Malaysia interest rates have a positive influence on inflation with a VD contribution at the end of the period of 13.19%. Broad Money positively influences inflation in Indonesia and Malaysia with VD contributions at the end of the period of 2.27% and 2.57% respectively. GDP has a positive influence on inflation in Indonesia with a VD contribution at the end of the period of 22.01%, while in Malaysia GDP has a negative influence on inflation with a VD contribution at the end of the period of 45.39%.

On the dynamics of a financial system with the effect financial information

This study aims to investigate a financial system consisting of four ordinary differential equations associated with the rate of interest, investment demand, price index, and the density of financial information gained by the population. The equilibrium and local stability of the system are investigated numerically. The impact of saving amounts and the rate of investment demand increases after getting financial information on the system are discussed. The findings of the study are verified graphically. It is found that the system becomes stable if the rate of investment demand increases after getting financial information kept at a certain level, such that the savings amount is maintained at a higher level. Also, the bifurcation diagrams of the system for various significant parameters that affect the system’s stability have been depicted.

How does macroprudential policy affect the relationship between financial openness and bank risk-taking

This paper investigates how macroprudential policy affects the relationship between financial openness and bank risk-taking by utilizing Chinese commercial banking data from 2005 to 2021. We find that financial openness generally promotes bank risk-taking. Robustness checks consistently support this finding, including variable substitutions, sample period adjustments, controlling for other shocks, and endogeneity concerns. The impact of financial openness on risk-taking demonstrates potential heterogeneity, contingent upon factors such as bank financing constraints, risk management, and financial regulation. We delineate credit, interest rate, and asset price channels through which financial openness affects bank risk-taking, notably by amplifying bank credit volumes, diminishing credit asset ratios, compressing net interest margins and spreads, and elevating asset prices. Macroprudential policies are identified as effective countermeasures against the heightened bank risk-taking associated with financial openness, with the effectiveness of these policies varying by the specific regulatory instruments.

KEY HIGHLIGHTS FROM A COMPARATIVE STUDY: "LEVEL OF ECONOMIC DEVELOPMENT AND NATIONAL POLICIES IN MEXICO AND NIGERIA (1970-2018)

The research written by an economist, Omolara Adebimpe Adekanbi is an in-depth comparative analysis of the economic trajectories of Mexico and Nigeria from 1970 to 2018. Leveraging frameworks by Amartya Sen and Paul Collier, the study evaluates the impact of government expenditure on health, education and welfare, foreign direct investment (FDI), external debt, and interest rates on Gross National Income (GNI). It offers a unique methodology to contextualize the effectiveness of policies and provides actionable recommendations for sustainable development across several issues including employment, food and agriculture, conflict and violence as they all impact the level of growth and development. The study's methodology and findings establish it as a vital contribution to the field of development economics.

The emergence of green finance a conceptual framework for environmental sustainability: innovation viewpoint

Background of the study This study intends to contribute to the continuing discussion about green economic growth by objectively investigating the consequences of clean energy generation, cutting-edge green practices, and ethical business on global sustainability. This study also examines how green finance laws effectively handle the financial limitations that companies face when pursuing green innovation. Green finance enables the development and implementation of sustainable business models, investments, trade, economic, environmental, and social projects through the effective utilization of financial resources. Methods This article offers a complete evaluation of the current state and advancements in green finance research using a mixed-methods approach, which includes bibliometric and qualitative analysis. We analysed a big dataset of research papers after entering the keywords into the Scopus database. Results This study found that green bank products include green securities, investments, climate financing, carbon finance, insurance, credit, and infrastructure bonds. Sustainability, sustainable development, investments, environmental economics, sustainable finance, green bonds, and the green economy dominate as a most prevalent theme. China has the strongest bibliometric linkages to other nations, followed by the US and UK. This study also examines whether green finance policies address firm financial restrictions while pursuing green innovation. VOS-viewer generates co-authorship-based keyword occurrence links and network maps. Conclusion Green finance strives to increase funding flows to sustainable development goals while mitigating environmental and social hazards. “Going green,” pricing, forecasting, modelling, picking the most efficient tool, and influencing investor behaviour toward environmentally friendly operations are all challenges. Environmental policies, interest rates, religion, risks, social inclusion, and banking laws all have an impact on bank green financing initiatives. The study’s main contribution is an overview of green finance breakthroughs for sustainability, which may help scholars and practitioners understand the trend and future research directions.

Online Appendix to Monetary Policy Interactions: The Policy Rate, Asset Purchases and Optimal Policy with an Interest Rate Peg

Online Appendix to Monetary Policy Interactions: The Policy Rate, Asset Purchases and Optimal Policy with an Interest Rate Peg

Monetary Policy Interactions: The Policy Rate, Asset Purchases and Optimal Policy with an Interest Rate Peg

Monetary Policy Interactions: The Policy Rate, Asset Purchases and Optimal Policy with an Interest Rate Peg

Divergent Relationships between Exchange Rate Pass-through and Policy Rates Across Economies: An Extension of the Taylor Rule

Although central banks often prioritize exchange rate stability, its role is frequently overlooked in the monetary policy analysis and simple interest rate rules do not comprise exchange rate arguments even in small open economies. This study extends the traditional Taylor rule by incorporating exchange rate deviations to determine their influence on monetary policy conduct across various economies. Our findings reveal heterogeneous impacts of exchange rate deviations on policy rates. Specifically, exchange rates significantly influence monetary policy in economies with fixed exchange rate regimes, higher foreign reserve ratios and lower levels of financial development.

Hedge Accounting Disclosures and Sustainable Growth of Listed Deposit Money Banks in Nigeria

The primary problem facing listed deposit money banks in Nigeria is their struggle to achieve sustainable growth in a volatile economic environment. This study investigated the impact of hedge accounting disclosures on the sustainable growth of these banks, focusing on commodity hedge disclosure, interest rate hedge disclosure, and foreign exchange rate disclosure, while controlling for market capitalization. Using an ex post facto research design, the study analyzed secondary data from 11 selected banks over a period of 10 years from 2014 to 2023. The method of data analysis was random effect regression technique. The findings revealed that commodity hedge disclosure (COMD) and interest rate hedge disclosure (INTD) have significant positive effects on the sustainable growth rates of listed deposit money banks in Nigeria. Conversely, foreign exchange rate disclosure (FEXD) has a significant negative effect on sustainable growth, indicating that high levels of foreign exchange risk exposure, when disclosed, may reduce investor confidence and perceived stability. The study concluded that hedge accounting disclosures significantly impact sustainable growth of listed deposit money banks in Nigeria. It recommended the management of listed deposit money banks in Nigeria should enhance commodity and interest rate hedge disclosures to improve the quality of foreign exchange risk communication.

Organizational and Economic Mechanisms for Promoting Residential Battery Energy Storage Systems in Ukraine

Energy storage technologies are one of the ways to decrease the intermittency of renewable energy such as sun or wind. The article aims to consider the organizational and economic mechanisms of promoting residential battery energy storage systems (R-BESS) in Ukraine, as households have ensured the significant growth of installed capacities of residential PV installations, reaching 1.4 GW by 2024. The energy system of Ukraine faces balancing challenges, and partial covering of the demand for energy by households with the help of R-BESS should be beneficial for the energy system. Using methods of levelized cost of electricity and cost of storing electricity, and based on the projected electricity demand and the number of R-BESS, measures were suggested to stimulate the R-BESS installation. Significant investments are required to employ R-BESS, reaching EUR2024 2.9-3.6 billion by 2050. If the interest rates for loans are subsidized, the expenditures on subsidies will reach only EUR2024 35-44 million, and the households themselves must allocate the remainder of the funds.

Foundations of Market Power in Monetary Economies

We study the foundations of firms' market power in a continuous-time model where agents are price-makers who interact explicitly with each other. Market power arises from the existence of rents, the size of which depends on consumers' outside options, and firms' ability to appropriate these rents through rent seeking. We study how measures of market power (e.g., markups, concentration) are affected by search frictions, monetary policy, and self-fulfilling beliefs. An increase in the nominal interest rate affects market power by changing consumers' payment capacity and the value of their outside options, and by altering firms' rent-seeking behavior.