Real Rate Research Articles

Manufacturing production as a source of growth: the case of Portugal

The aim of this paper is to test the relationship between manufacturing production and economic growth in Portugal from the 1950s to the present day, following Nicholas Kaldor’s (1908–1986) thinking, which assumes that manufacturing is the true engine of the economic activity of a country. By estimating a series of econometric models, including a Vector Autoregressive (VAR) model, it was possible to identify a positive relationship between growth and manufacturing production since the 1950s. The results also show that each increase of 1 percentage point (pp) in real growth rate of the production of basic metallurgical industries and manufacture of metallic products in a certain year t−1 for the period 1956–2019, caused an increase of 0.07 pp in the Portuguese economic growth during a following year t on average. We hope that these findings will stimulate new and interesting research regarding the important issues of manufacturing production and economic growth.

The Impact of Government Expenditure on Economic Growth in Malaysia

This study experimentally investigates the relationship between economic growth and government spending in Malaysia from 1990 to 2022 using time series data. The study analyzes the impact of total government spending on economic growth, covering housing, healthcare, social services, military, and education while identifying which sector has the most effect on economic growth. The Autoregressive Distributed Lag (ARDL) method is employed to evaluate the effects of these expenditures. The findings demonstrate that, in the short run, all variables significantly affect economic growth, hence refuting the null hypothesis. However, only trade openness and labor spending positively impact long-term economic growth. Research indicates that housing and education expenditures are the primary long-term drivers of economic growth in Malaysia. The data suggest that the Malaysian economy contradicts the Keynesian theory, as less government spending appears to improve the real GDP growth rate. The inverse relationship between government spending and economic growth indicates that government expenditure may not be the primary catalyst for economic growth, hence supporting Wagner’s law. These findings provide policymakers with essential insights for optimizing government spending to improve economic development results.

Real Case Study of 600 m3 Bubble Column Fermentations: Spatially Resolved Simulations Unveil Optimization Potentials for l-Phenylalanine Production With Escherichia coli.

Large-scale fermentations (»100 m³) often encounter concentration gradients which may significantly affect microbial activities and production performance. Reliably investigating such scenarios in silico would allow to optimize bioproduction. But related simulations are very rare in particular for large bubble columns. Here, we pioneer the spatially resolved investigation of a 600 m³ bubble column operating for Escherichia coli based l-phenylalanine fed-batch production. Microbial kinetics are derived from experimental data. Advanced Euler-Lagrange (EL) computational fluid dynamics (CFD) simulations are applied to track individual bubble dynamics that result from a recently developed bubble breakage model. Thereon, the complex nonlinear characteristics of hydrodynamics, mass transfer, and microbial activities are simulated for large scale and compared with real data. As a key characteristic, zones for upriser, downcomer, and circulation cells were identified that dominate mixing and mass transfer. This results in complex gradients of glucose, dissolved oxygen, and microbial rates dividing the bioreactor into sections. Consequently, alternate feed designs are evaluated splitting real feed rates in two feeds at different locations. The opposite reversed installation of feed spots and spargers improved the product synthesis by 6.24% while alternate scenarios increased the growth rate by 11.05%. The results demonstrate how sophisticated, spatially resolved simulations of hydrodynamics, mass transfer, and microbial kinetics help to optimize bioreactors in silico.

Role of nonthermal solar wind protons in the excitation of electromagnetic proton-cyclotron instability: a kinetic theory based exact numerical investigation

Free transverse kinetic energy i.e. perpendicular temperature anisotropy of protons excite the electromagnetic ion/proton cyclotron instability which is pertained to waves associated with prevalent electromagnetic ion/proton cyclotron emissions in various natural regions of plasmas. The transverse dielectric response function of left hand circularly polarized electromagnetic proton cyclotron (EPC) instability is calculated for two models of nonthermal Cairns distributed plasmas. These models are distinguished according to the effective thermal velocities of protons. For the energetic nonthermal protons populations, nonthermality dependent effective temperature model is proposed which significantly contributes in the excitation of aforementioned plasma mode and cause an appreciable enhancement in the instability growth rate. Exact numerical solution of dispersion relation yields oscillatory real frequency and growth rate of instability. A comparative analysis is also carried out to examine the instability behavior in distinct nonthermal and thermal plasma models. Contemporary numerical investigations are highly beneficial to understand the intricate dynamics of space plasmas.

Macroeconomic Drivers of Inflation in Ethiopia: Evidence from ARDL Modelling

Purpose: This study identifies the macroeconomic determinants of inflation in Ethiopia from 2012 to 2023, a period marked by reforms and liberalization efforts. Despite these measures, inflation remains a critical challenge impacting Ethiopia's economic stability.Method: Utilizing the ARDL model, this study examines the relationship between inflation and various macroeconomic indicators. Data are drawn from sources such as the National Bank of Ethiopia (NBE), Ethiopian Economic Association (EEA), International Monetary Fund (IMF), and World Bank (WB). The Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) tests are employed to assess data stationarity.Findings: Results indicate that money supply growth, import-to-GDP ratio, budget deficit, and public expenditure have a significant positive effect on inflation in both the long and short term. Conversely, lending interest rates exhibit inflationary effects in the short term but are deflationary in the long term. Additionally, external debt-to-GDP ratio, official exchange rate, and real GDP growth rate demonstrate negative long-term impacts on inflation.Novelty: This research uniquely integrates key macroeconomic variables, analyzing their divergent impacts on inflation across short- and long-term frameworks in Ethiopia's context.Implications: The findings underscore the importance of balanced fiscal and monetary policies to curb inflation, offering critical insights for Ethiopian policymakers aiming to foster economic stability.

Indoor environmental quality assessment in passively ventilated classrooms in Germany and estimation of ventilation energy losses

In this field study we present an approach for the comprehensive and room-specific assessment of parameters with the overall aim to realize energy-efficient provision of hygienically harmless and thermally comfortable indoor environmental quality in naturally ventilated non-residential buildings. The approach is based on (i) conformity assessment of room design parameters, (ii) empirical determination of theoretically expected occupant-specific supply air flow rates and corresponding air exchange rates, (iii) experimental determination of real occupant-specific supply air flow rates and corresponding air exchange rates, (iv) measurement of indoor environmental exposure conditions of T, RH, cCO2, cPM2.5 and cTVOC, and (v) determination of real energy demands for the prevailing ventilation scheme. Underlying assessment criteria comprise the indoor environmental parameters of category II of EN 16798-1: Temperature T = 20 °C–24 °C, and relative humidity RH = 25 %–60 % as well as the guide values of the German Federal Environment Agency for cCO2cPM2.5 and cTVOC of 1000 ppm, 15 μg m−3, and 1 mg m−3, respectively.Investigation objects are six naturally ventilated classrooms of a German secondary school. Major factors influencing indoor environmental quality in these classrooms are the specific room volume per occupant and the window opening area. It is concluded that the rigorous implementation of ventilation recommendations laid down by the German Federal Environment Agency is ineffective with respect to anticipated indoor environmental parameters and inefficient with respect to ventilation energy losses on the order of about 10 kWh m−2 a−1 to 30 kWh m−2 a−1.

Inflation forecasting in turbulent times

AbstractIn the recent years many countries were hit by a series of macroeconomic shocks, most notably as a consequence of the COVID-19 pandemic and Russia’s invasion in Ukraine, raising inflation rates to multi-decade highs and suspending well-documented macroeconomic relationships. To capture these tail events, we propose a mixed-frequency Bayesian vector autoregressive (BVAR) model with Student t-distributed innovations or with stochastic volatility. Whereas inflation, industrial production, as well as oil and gas prices are available at monthly frequencies, real gross domestic product (GDP) is observed at a quarterly frequency. Thus, we apply a mixed-frequency setup using the forward-filtering–backward-sampling algorithm to generate monthly real GDP growth rates. We forecast inflation in those euro area countries that extensively import energy from Russia and therefore have been heavily exposed to the recent oil and gas price shocks. To measure the forecast performance of the mixed-frequency BVAR model, we compare our inflation forecasts with those generated by a battery of competing inflation forecasting models. The proposed BVAR models dominate the competition for all countries in terms of the log predictive density score.

Corporate finance, collateralized borrowing, and monetary policy

We construct a monetary model in which entrepreneurs facing uncertainty in input costs and returns of projects may finance investment internally and with bank credit. Entrepreneurs using money as a down payment and bonds as collateral can reduce the default probability. Working through these key channels, lower nominal policy rates and open market sales can reduce the real lending rate. The central bank’s private asset purchases improve availability of credit and compress risk spreads. Our model identifies the risk-reducing channel of private asset purchases—the policy functions as if the government had supplied more bonds, and the increased collateralizable bonds are allocated more to corporate borrowings with a higher lending risk. Risk-retention requirements associated with asset purchases are essential to welfare. As uncertainty with respect to input costs and investment returns intensifies, the central bank should lower the optimal risk-retention rate to encourage lending and reduce business failures.

When Interest Rates Go Low, Should Public Debt Go High?

Is deficit finance free when real borrowing rates are routinely lower than growth rates? Specifically, can the government make all generations better off by perpetually taking from the young and giving to the old? We study this in stochastic closed- and open-economy OLG models. Unfortunately, Pareto gains are predicted only for implausible calibrations. Even then, the gains reflect improved inter-generational risk sharing, improved international risk sharing, and beggaring thy neighbor—not intergenerational redistribution, per se. As we show, theoretically and quantitatively, low government borrowing rates suggest state-contingent bilateral transfers between generations––not unconditional, unilateral redistribution from future to current generations. (JEL E43, E62, F41, H55, H63)

Dynamic changes in the real-time glomerular filtration rate and kidney injury markers in different acute kidney injury models

In this study, we dynamically monitored the glomerular filtration rate and other assessment of renal function and markers of injury in various mice models of acute kidney injury. Male C57BL/6 mice were utilized to establish acute kidney injury models of sepsis, ischemia reperfusion, cisplatin, folic acid, aristolochic acid and antibiotic. In addition to the real time glomerular filtration rate, renal LCN-2 and HAVCR-1 mRNA expression levels, and serum creatinine, urea nitrogen and cystatin c levels were also used to evaluate renal function. In addition, the protein levels of LCN-2 and HAVCR-1 in renal, serum and urine were measured. Our results demonstrated that the changes in biomarkers always lagged the real time glomerular filtration rate during the progression and recovery of renal injury. Cystatin-c can reflect renal injury earlier than other markers, but it remains higher in the recovery stage. Perhaps the glomerular filtration rate does not reflect the greater injury caused by vancomycin plus piperacillin.

The cost-efficiency carbon pricing puzzle

Any global temperature target must be translated into an intertemporal carbon budget and its associated cost-efficient carbon price schedule. Under the Hotelling’s rule without uncertainty, the growth rate of this price should be equal to the interest rate. It is therefore a puzzle that many cost-efficiency IAM models yield carbon prices that increase at an average real growth rate above 7% per year, a very large return for traders of carbon assets. I explore whether uncertainties surrounding the development of green technologies could solve this puzzle. I show that future marginal abatement costs and aggregate consumption are positively correlated. This justifies doing less for climate change than in the safe case, implying a smaller initial carbon price, and an expected growth rate of carbon price that is larger than the interest rate. In the benchmark calibration of my model, I obtain an equilibrium interest rate around 1% and an expected growth rate of carbon price around 3.5%, yielding an optimal carbon price above 200 USD/tCO2 within the next few years. I also show that the rigid carbon budget approach to cost-efficiency carbon pricing implies a large uncertainty surrounding the future carbon prices that support this constraint. I show that green investors should be compensated for this risk by a large risk premium embedded in the growth rate of expected carbon prices, rather than by a collar on carbon prices as often recommended.

On the real rate of interest in a closed economy

On the real rate of interest in a closed economy

Prevalence and Patterns of Drug Use Among People in Al-Najaf Governorate, Iraq

Background: After a series of instability Iraq confronted in the past decades, the drug abuse issue has grown and is now a complex national concern where the rise in drug transshipment through the country and neighbor countries accompanies noticeable increased consumption of drugs especially those associated with transnational criminal networks such as amphetamines. This is a descriptive cross-sectional epidemiological study conducted in Al-Najaf governorate from January to March 2024, qualitative data based on the correction institutions of the Ministry of the Interior using a non-probability sample since lack of precise sample frame or data about the real prevalence or rate of the problem. The study recruited 288 drug users all between 20-64 years, 31(10.8%) were females and 257(89.2%) were males (49%). 237 (82%) of the drug users of young adults between 20 to 40 years old. The objective was to investigate personal history and examine the extent and patterns of the abuse of drugs, using a structured questionnaire designed and modified after reviewing relevant studies. The study found that the majority of the participants smoked nicotine throughout their lifetime as 60.8% smoked hookah, 15% smoked e-cigarettes and 86% smoked cigarettes with about 75% current heavy smokers, 51% of participants used alcohol as lifetime prevalence with more than 32% used it weekly. A large percentage: 88% abused more than one type of illicit drug with amphetamine stimulants (methamphetamine and fenethylline) as the most commonly abused illicit drugs among the majority of the participants. The lifetime prevalence of prescription drug use was 86%. 60% used more than one method of administration, while 8% used drugs by injection. The study concluded that a large percentage of the study participants were polydrug abusers with extensive patterns of use which revealed the complex status of which stresses a holistic approach to managing the problem. Conclusion: The study concluded that a large percentage of the study participants were polydrug abusers with extensive patterns of use which revealed the complex status of which stresses a holistic approach to manage the problem.

Monetary and fiscal policy impacts under alternative trilemma regimes

Using a new set of trilemma indexes for exchange rate stability, financial market openness, and monetary policy independence, this paper first locates more than one hundred economies in the trilemma triangle over time. Second, the paper depicts individual economies’ trilemma regimes, defined by combinations of the three indexes, in the global map. Third, the paper tests econometrically the impact of monetary and fiscal policies on key macroeconomic variables (i.e., the real GDP growth rate gap, inflation, and their variability/volatility) under alternative trilemma regimes. Fourth, it examines the roles of trilemma regimes in influencing the macroeconomic variables. Econometric analysis uses a sample of 61 emerging market & developing economies over the period 1971–2020. The two-stage least squares estimation results largely support the Mundell-Fleming predictions made for three “corner” regimes. Monetary policy is effective in raising the real GDP growth rate gap and its variability under the “flexible exchange rate” corner regime, but not under the “financially open fixed rate” regime. Monetary policy is most effective in stimulating inflation and inflation volatility under the “flexible rate” regime. Fiscal policy has a positive impact on the GDP growth rate gap under the “flexible rate” regime and positive impacts on inflation and variability/volatility measures under the “financially closed fixed rate” regime, while it has no such impact under the “financially open fixed rate” regime, a somewhat surprising finding. The “financially open fixed rate” regime has a role of achieving price stability in a financially open economy.

Effects of Transmission Mechanism of Monetary Policy Channels on Economic Growth in Ethiopia: Cointegration and Causality Analysis Approach

The study aimed at investigating and analyzing factors those effects of transmission mechanism of monetary policy channels on economic growth in Ethiopia using a 36 years’ time series data. To this end, variables such as economic growth (dependent variable), and other regress variables such as real lending rate, real effective exchange rate, credit for private sector, consumer price index, trade of opens, gross capital formation, and money supply are considered. An empirical model linking the real GDP to its theoretical effects is then specified. This study had employed the co-integration and vector error correction model (VECM) analysis with impulse response and variance decomposition analysis to provide robust long run effects and short run dynamic effects on the real GDP. All variables under consideration are integrated of order one I (1) and also co-integrated. Vector Error Correction Model/VECM/ results show that real GDP was positively and significantly affected by the real effective exchange rate, money supply, gross capital formation (investment), credit for private sector, trade of openness over a period of long-run; while real leading interest rate and consumer price index (inflation) have significant negative effect. The estimate of the speed of adjustment coefficient found in this study indicates that about a 31 percent of the variation in the real GDP from its equilibrium level is corrected within a year. The study suggests that lowering the lending interest rate can encourage more private investment because it will encourage private investors to borrow more, which will increase investment in Ethiopia. Since investment is one of the factors that determine the gross domestic product, this will result in an increase in the GDP.

Fiscal spillover in emerging economies: Real versus financial channels

Fiscal policy is an important tool for business cycle stabilization and has significant spillover through real and financial channels. This paper estimates the spillover of US fiscal policy shock in emerging economies which is distinct from US monetary policy spillover. We find that - similar to its effect in advanced economies as documented in the literature - the shock lowers both the nominal and real policy rates in emerging economies. Results suggest a disconnect between long-term and policy rates that leads to the steepening of the yield curve in emerging economies in the medium term due to the shock. Most of these effects of US government expenditure shock on the policy rate and the yield curve in emerging economies are direct effects (financial channel) and not indirectly driven by the effect of this shock on GDP growth and inflation (real channel). Contrary to its effect in the US, we find that this shock leads to a prolonged appreciation of real effective exchange rates in emerging economies, hurts their external competitiveness, and leads to a contraction in output in emerging economies. As expected, countries having higher exports and trade-to-GDP ratio experience a bigger decline in output.

U.S. macroeconomic news and low-frequency changes in bond yields in Canada, Sweden and the U.K.

This paper investigates the importance of U.S. macroeconomic news in driving low-frequency fluctuations in the term structure of interest rates in Canada, Sweden, and the U.K. We follow two complementary approaches: First, we apply a regression-based framework that aggregates the impact of daily macroeconomic news on bond yields to a lower quarterly frequency. Next, we estimate a macro-finance affine term structure model linking the daily news to lower-frequency changes in bond yields and its expectations and term premia components. Both approaches show that U.S. macroeconomic news is an important source of lower-frequency quarterly fluctuations in bond yields in these open economies, and even more important than their respective domestic macroeconomic news. Furthermore, the macro-finance model shows that U.S. macroeconomic news is particularly important in explaining low-frequency changes in the expectation components of the nominal, real, and break-even inflation rates.

FDI REFORMS AND INDUSTRIAL WAGE AFTER THE LAUNCH OF “MAKE IN INDIA”: EMPIRICAL EVIDENCE

India gradually started liberalizing its industrial, trade and foreign direct investment (FDI) related policies since the launch of economic reforms in 1991. The empirical evidence on the impact of FDI spillovers on industrial wages in India has generated mixed results so far. The current study analysed the impact of FDI inflows on the real wage rates of the workers using data from seven major industrial sectors between 2001–2002 to 2019–2020. The two-stage least squares (2SLS) estimation results suggest that FDI inflows positively influenced both the skilled and unskilled wage rates. Moreover, FDI inflows in productive sectors led to a greater rise in wages vis-à-vis the unproductive sectors. In addition, key government policy initiatives like the Make-in-India (MII) scheme and FDI reforms were found to be effectively enhancing wage rates, though the impact on skilled wage rates was greater. The paper stressed the need to create a holistic environment that can attract FDI in both upstream and downstream segments, facilitating India’s deeper participation in global value chains (GVCs) and IPNs on the one hand and realisation of associated dynamic benefits on the other.

Optimal Spending Strategies for Sovereign Wealth Funds Using a Discrete-Time Life Cycle Model

The paper analyses optimal spending of an endowment fund. The purpose is to find a spending rule which is optimal for the owners and which secures that the fund will last “forever”. This we do by finding closed form solutions of the optimal consumption to wealth ratio. We solve this problem using the life cycle model, where the agent can have preferences represented by expected utility or recursive utility. We apply our results to a sovereign wealth fund, and demonstrate that the optimal spending rate is significantly lower than the fund’s expected real rate of return, a rule which is in common use. Employing the latter as the spending rate, implies that the fund’s value deteriorates both in probability and in expectation, as time goes. For both kinds of long term convergence we find closed form threshold values. Spending below these values secures a sustainable fund.

Normal Asset Allocations and Their Statistical Properties

This study focuses on efficient asset allocations that properly include T-bills, T-bonds, and the S&P 500 stock index. It checks that their annual real rates of linear return are both normal and almost lognormal. It reexamines how efficient portfolios based on the rates of linear return may turn into efficient portfolios based on the rates of logarithmic return. It finds that each efficient asset allocation has the lowest possible standard deviation as well as the highest possible arithmetic and geometric means. It eventually reconsiders the relationship between the confidence interval of a geometric mean and an expected long-run capital accumulation. As a consequence, it bridges a gap in the scientific literature by enabling financial advisors to trade off the mean rate of return on a portfolio more rigorously against the value at risk.