Reduction In Interest Rates Research Articles

Monetary Policy, Redistribution, and Risk Premia

We study the transmission of monetary policy through risk premia in a heterogeneous agent New Keynesian environment. Heterogeneity in households' marginal propensity to take risk (MPR) summarizes differences in portfolio choice on the margin. An unexpected reduction in the nominal interest rate redistributes to households with high MPRs, lowering risk premia and amplifying the stimulus to the real economy. Quantitatively, this mechanism rationalizes the role of news about future excess returns in driving the stock market response to monetary policy shocks and amplifies their real effects by 1.3-1.5 times.

Effective investment policy as a key to sustainable development of the Russian economy

The external and internal conditions of the domestic economy are changing dynamically. These changes should be considered when adjusting the existing and developing new mechanisms to ensure the investment attractiveness of the economy. These also include the Federal Law “On Protecting and Encouraging Capital Investments in the Russian Federation”, implementation of special investment contracts, and further development of the “Project Finance Factory” program. The problem of improving the quality of investment policy should be addressed not only through the development of a system of measures aimed at the development of investment legislation and increasing state support for investment activities. The “evolution of values” is of fundamental importance here and contributes to the formation of an investment mentality. Strategic goals will dominate over short-term ones, and the strengthening of trust between the state, business, and civil society will be transformed into a real improvement of the investment climate, reduction of risk premiums and interest rates, as well as an increase in the volume of investments in public-private partnership projects. A necessary condition for the “evolution of values” is the creation of a specific system of education.

BVAR models in short-term prediction of modern central banks: empirical evidence of the euro area

It has been more than a decade since central banks, in the face of the global financial crisis, implemented unconventional initiatives. Monetary authorities' actions have led to a reduction of main interest rates to historically low levels and huge expansion of central banks' balance sheet. So far, they still have not returned to the pre-crisis framework and implemented the normalisation process. Nowadays, there is observed a trend to use econometric models in monetary policy to forecast macroeconomic variables and plan normalising activities. The main aim of the study is empirical verification of BVAR model in short-term predicting, that might be used by the European Central Bank in its normalisation process. The conducted research indicate that the large BVAR model for the Eurozone has a significant predictive value in short-term forecasting. At the same time indicating its considerable precision and accuracy in prediction, with a high degree of objectivity and flexibility.

Bank Risk-Taking and Impaired Monetary Policy Transmission

We consider a standard banking model with agency frictions to simultaneously study the weakening and reversal of monetary transmission and banks’ risk-taking in a low-interest environment. Both, weaker monetary transmission and higher risk-taking arise because lower policy rates impair banks’ net worth.The pass-through to deposit rates, the level of excess reserves and the extent of the agency problem between banks and depositors are crucial determinants of monetary transmission. If the deposit pass-through is sufficiently impaired, a reversal rate exists. For policy rates below the reversal rate further interest rate reductions lead to a disproportionate increase in risk-taking and a contraction in loan supply.

Forbearance vs Foreclosure in a General Equilibrium Model

We build a business cycle model characterized by endogenous firms dynamics, where banks may prefer debt renegotiation, i.e. non-performing exposures, to outright borrowers default. We find that debt renegotiations only do not have adverse effects in the event of financial crisis episodes, but a large share of non-performing firms is associated with a sharp deterioration of economic activity in two cases. First, if there are congestion effects in banks ability to monitor non-performing loans. Second, if such loans adversely affect the commercial banks’ moral hazard problem due to their opacity. Aggressive interest rate reductions and quantitative easing limit defaults and the output contraction caused by a financial crisis, without ad- verse effects on the entry of new, more productive firms. The model shows that the observed long-run trend in the share of non-performing loans might be caused by the persistent reduction in technological advancements which drive firm entry rates and firms turnover.

Macroeconomic Determinants of Unemployment In the East African Community

Due to the increasing concern regarding the unemployment problem in the East African Community (EAC), this study examines the macroeconomic determinants of unemployment using panel data approaches. The study used annual data for the period 1996 to 2017, which was obtained from the International Labour Organization (ILO) and the World Bank database of the World Development Indicators of 2018. The study estimated the random effects and fixed effects models. Importantly, instrumental variable-fixed effects regression was estimated to control for the potential endogeneity in the regression. The study findings indicate that unemployment in the EAC is likely to decrease with sustained economic growth and increased supply and access to private sector credit while, on the other hand, increased trade openness and gross national expenditure are likely to exacerbate the unemployment problem. Therefore, the study recommends measures to increase economic growth (such as promoting high productivity industries with high employment intensity), enhance competitiveness and reasonable protection of infant firms (e.g., through subsidized credit), and enhance supply and access to credit by the private sector (such as risk insurance and reduction of interest rates).
 JEL Code: E24, J01 J2.

475. Describing the impact of the COVID-19 pandemic on HIV care in Latin America

BackgroundThe effects of the COVID-19 pandemic on people living with HIV (PWH) are unknown. Beyond SARS-CoV-2 co-infection, the pandemic may have devastating consequences for HIV care delivery. Understanding these is crucial as reduced antiretroviral therapy (ART) availability alone could lead to ≥500,000 AIDS-related deaths in 2020–2021. With Latin America now a focal point in the pandemic, we sought to describe the impact of COVID-19 on HIV care at Latin American clinical sites.MethodsCaribbean, Central and South America network for HIV epidemiology (CCASAnet) and additional Brazilian HIV care sites in Argentina, Brazil, Chile, Haiti, Honduras, Mexico, and Peru were included. An electronic survey of COVID-19 effects on HIV clinic operations was administered in Spanish or English via phone and email, April 28-June 2, 2020. We also compared national COVID-19 case, mortality, and policy data from public sources.ResultsBrazil’s and Mexico’s epidemics appear most pronounced, with >10,000 confirmed COVID-19-related deaths (Figure 1); countries implemented “social distancing” policies at different times after initial cases, with Haiti earliest and Mexico latest (Figure 2). Nearly all 13 sites reported decreased hours and providers for HIV care. Twelve of 13 reported increased use of telehealth, suspension/postponements of routine HIV appointments, and/or suspension of HIV research. Eleven of 13 reported initiation of new COVID-19 research but suspension of community HIV testing, and nearly half provided additional ART supplies. Nearly 70% reported impacts on HIV viral load testing and nearly 40% reported personal protective equipment stock-outs (Table). All 13 sites experienced changes in resources/services in tandem with national policies; there was wide variation, however, in the number of economic and health supports implemented thus far (e.g., quarantines, tax deferrals, interest rate reductions, etc.), from 172 COVID-19-related policies in Brazil to only 30 in Mexico. Table Site Assessment of Impacts of the COVID-19 Pandemic on HIV services in Latin America at CCASAnet and Coorte Sites, N=13 Figure 1. Cumulative mortality due to COVID-19 in countries within which CCASAnet and Coorte sites are located Figure 1 footnote: Source for mortality counts: the WHO COVID-19 Dashboard, available at: https://covid19.who.int/ All data were up-to-date as of, and were accessed on, June 17th, 2020 Figure 2. Cumulative cases of COVID-19 in countries within which CCASAnet and Coorte sites are located and dates (relative to the day on which the first positive case of COVID-19 was detected) of general social distancing, public health emergency, or mass quarantine policy introduction (vertical dashed lines), 2020 Figure 2 footnote: Source for case counts: the WHO COVID-19 Dashboard, available at: https://covid19.who.int/ Source for health policy implementation: the United Nations Economic Council for Latin America & the Caribbean, available at: https://cepalstat-prod.cepal.org/forms/covid-countrysheet/index.html All data were up-to-date as of, and were accessed on, June 17th, 2020 ConclusionThe COVID-19 pandemic has already had a substantial effect on daily operations of HIV clinics in Latin America. The downstream effects of these impacts on HIV outcomes in Latin America will need to be further studied.Disclosures All Authors: No reported disclosures

The objectives of interest-free financing: An evaluation on the main texts

In contemporary global liberal economic systems, interest is recognized as an essential and indispensable tool. Ontologically speaking, there is no imperative to eliminate interest from within the system, although debates may arise concerning its rates. The notion that interest in history is considered a need beyond the norm is almost unheard of. Muslim societies integrated into the global economic system have adopted practices to normalize the use of interest, despite acknowledging that it conflicts with their beliefs. However, these efforts have not been successful in reducing interest rates or providing interest-free options to Islamic individuals and institutions. Although the compatibility of interest-free financial institutions and instruments developed under the liberal economic system and Islamic law requires further research, these entities are alleviating the root causes of interest rate restrictions. This study addresses the specific reasons behind the prohibition of interest and explores ways to eliminate these issues while remaining within the system. Using the document analysis method, which is commonly used in qualitative research for methodological purposes, this study will examine basic works in the field and provide evaluations.

Words and deeds in managing expectations: Empirical evidence from an inflation targeting economy

Monetary policy affects private sector expectations through not only its actions, but also its communication. In this paper, we adopt a novel approach to compare the impact of central bank interest rate decisions, macroeconomic projections, and textual content of policy documents on private sector expectations. We demonstrate that the role of central bank communication and decisions differs depending on the variable and the forecast horizon. The reaction of inflation expectations to typical changes in policy communication is stronger than their responses to typical policy decisions, whereas the opposite holds for interest rate expectations. Our findings imply that central banks have a range of measures at their disposal to affect expectations. The ability to use communication in managing expectations is especially important when the scope of reducing interest rates is limited.

Growth of Fixed Capital Investments in the Regional Economy by Increasing Debt Financing

An increase in fixed capital investments is necessary for accelerating the growth of the Russian regions and the economy as a whole and requires increased financial resources. The paper considers the possibility of increasing financial resources of regional companies by attracting additional debt financing. The proposed methodology determines the potential demand for debt financing, considering the performance requirements ensuring financial stability. The paper analyses how an increase in debt financing influences credit rating of a company as well as the cost of debt financing attraction. Unlike other works, this paper considers the debt capital structure of companies. Additionally, the study proposes a methodology for identifying changes in the coefficient of interest coverage (that affects credit rating of companies) depending on various debt financing structures. The application of the developed methodology allowed determining the potential increase in debt financing, which is necessary for the investment of regional companies. Debt financing can increase by 1.7 times (43.5 trillion roubles) in Russia in general, 1.4 times in the Sverdlovsk region, 2 times in the Tyumen region, and 1.6 times in the Chelyabinsk region. There are no opportunities to increase debt financing in the Kurgan region. A reduction in interest rates on loans to non-financial companies allows expanding debt financing of the Russian economy without lowering the credit rating. The study results can be used to determine the potential demand for debt financing from companies, industries, regions and the economy as a whole. Further research may consider the validity of the policy of high interest rates on loans to non-financial companies for achieving high economic growth.

Public Finance in Pandemic Times

Never before in living memory has economic destruction been so severe as it has been caused by the COVID-19 pandemic. The pandemic has struck at a time when the economy has already been slowing due to structural problems. Therefore, hastening the recovery process and accelerating the pace of economic growth requires the government not only to provide substantial stimulus but also to implement structural reforms. The stimulus provided so far has been mainly by the RBI on the supply side in terms of reducing interest rate, augmenting augment liquidity, restructuring loans to stressed sectors, moratorium on repayment of loans to severely impacted businesses and regulatory forbearance. The fiscal stimulus on the demand side has not been significant and amounted to just about 1.5 percent to 2 percent of GDP. The sharp contraction of the economy by 15.7 percent in the first half has substantially eroded revenue collections requiring both central and state governments to sharply reduce both government consumption and investment expenditures. Faster recovery in the second half of the year will crucially depend upon heavy lifting by the governments which requires them to increase consumption expenditures, transfers as well as capital expenditure by scaling up borrowing as well as monetizing the assets. The aggregate fiscal deficit as well as outstanding debt are likely to show a sharp increase which will raise questions of sustainability. The government has initiated a number of reforms, particularly to infuse flexibility to land and labour markets, reform regulatory systems in education and healthcare, and has made additional borrowing to the states conditional on undertaking power sector reforms, property tax reforms and improving the ease of doing business. However, implementation of these reforms holds the key. There is a need to urgently address problems of the financial sector. Reforms in sectors such as police and judiciary too are overdue to protect the life and property of people and enforce contracts.

LENDING COMPETITION AND LOAN SALES: A MACROECONOMIC ANALYSIS UNDER DIRECTED SEARCH

We present a macroeconomic analysis of loan sales driven by bank competition in lending and entrepreneur directed search for funding opportunities. We show how these two features of our macrofinance model can interact to reduce interest rates on loans financed via on‐balance‐sheet activities, and how this can motivate loan sales as a strategy of financing via off‐balance‐sheet activities. The results shed some light on the shift over the years preceding the global financial crisis in the practice of U.S. and European banks, from the traditional “originate‐to‐hold” model of credit provision, toward the “originate‐to‐distribute” approach for credit extension. (JEL E44, G21, G24).

Does trust matter for the cost of bank loans?

This paper extends the literature related to the role of trust on economic activity, focusing on the influence of trust on lender-borrower relationships and analysing its effect on the interest rate spread for a sample of 20,699 loans from 47 countries over the period 2003–2018. We consider not just the role of trust, but also how its effect is moderated by the country's legal enforcement and degree of economic development. The results show that trust has no effect on loan spreads. However, trust is found to reduce loan spreads when a country's formal institutions are weak, in line with the existence of a substitutive effect between formal and informal institutions in reducing interest rates. As regards the degree of economic development, our results show that both trust and legal enforcement have a greater influence on the interest rate spread of bank loans in countries with a lower level of economic development.

Monetary Policy Mechanisms and Economic Growth Stability in Nigeria

The study considers the effectiveness of monetary policy tools in guaranteeing economic growth stability in Nigeria. In recent times monetary policy tools have become very productive in stabilizing an economy. Thus, this study employs three monetary policy instruments which include: money supply, interest rate and exchange rate to examine the effectiveness of the monetary policy on economic growth stability in Nigeria from 1998 to 2018. The findings reveal that the money supply is substantially positive in influencing the GDP, which is used as a proxy for economic growth stability. However, interest rate and exchange rate do not have a significant impact on the GDP. The study concludes that money supply is the most productive monetary policy tool in Nigeria and recommends its proper usage to achieve maximum economic benefit. The relevant financial power (CBN) in the country is encouraged to allow more accessibility to credits by reducing interest rate and exchange rate fluctuations.

ASSESSMENT OF AGRICULTURAL CREDIT SOURCES AND ACCESSIBILITY IN NIGERIA

Rural and small holder famers in Nigeria and other developing countries have low capital base and poor access to finance. The inability of these farmers’ access to adequate credit has increased the problem of low efficiency in production. Inadequate credit supply is a major problem with which other production factors may exert negative influence on farmers’ output and efficiency. In ascertaining the sources and accessibility of credit by crop farmers in Enugu-Ezike in Enugu State, Nigeria, the sources of credit to farmers, the socio-economic characteristics of crop farmers’ that have access to credit, access to credit constraints and possible ways of improving farmers’ access to credit were investigated. Primary data collected through the administration of questionnaire were analysed using descriptive statistics and probit regression. Results showed that most crop farmers obtained credit mainly for farming and have accessed credit through informal sources, with friends and relatives being the most popular source. Majority of the farmers, who obtained information about credit through phone calls agreed that there were no delays in loan approval. Although, probit regression revealed that the independent variables (gender, age, marital status, education, household size, farm size, membership of cooperatives and farming experience) were not significant in jointly affecting access to credit at all probability levels, however, membership of cooperatives had an individually negative significant relationship with access to credit at the 10% (p<0.10) level. Recommendations that will improve access to credit include: increasing farmers’ access to information; reducing loan acquisition rigidity; reducing interest rate; having bank account; establishment of community and agricultural banks in the rural areas with simple procedures for securing loans; and the mobilization of farmers into groups to maximize the benefit of collective investment or group savings.

RURAL HOUSING CHALLENGES IN THE UPPER WEST REGION OF GHANA: A CASE STUDY OF KULMASA

Housing is one of the most basic needs of human beings but many people find it difficult to afford. This is why there are many housing shortages in most parts of the world especially in developing countries. There seems to be paucity of studies on rural housing challenges in Ghana in general and Kulmasa community in the Upper West Region of Ghana in particular. This research seeks to bridge this knowledge gap by assessing rural housing challenges in the Upper West Region of Ghana using Kulmasa as a case study area in order to come out with interventions to address these housing challenges. Study methods include the use of questionnaire, interview guides and observation checklist for data analysis. A total of 66 respondents (both male and female) who took part in this study were purposively selected. The results indicated that the existing housing conditions in Kulmasa community in the Wa Municipality of the Upper West Region of Ghana are in substandard state. The study found out that cultural reasons, proximity to place of work, environmental friendliness of the area, accessibility and affordability of the land and availability of better infrastructure are factors influencing housing development in Kulmasa community of the Upper West Region of Ghana. The study found out that lack of access to secure land, limited access to finance, high cost of land registration, slow bureaucratic procedures, lack of infrastructure in rural areas, development controls, uncoordinated policies and implementations, high cost of construction and high price of land are some of the challenges of the existing housing conditions in Kulmasa community of the Upper West Region of Ghana. It is recommended that the government of Ghana should provide enabling environment for private sector to provide safe, adequate and affordable housing for people in rural communities in the Wa Municipality of the Upper West Region of Ghana. Again, the study recommends that the government of Ghana should liaise with banks and set up social housing mortgage scheme for the people of Kulmasa community. This entails interested banks pooling reasonable sum of money together for lending to the people of Kulmasa community at a negotiated but reduced interest rate of say 5% or less. Keywords: Rural, Housing, Challenges, Kulmasa Community, Wa Municipality, Upper WestRegion, Ghana.

Central Banks' Financial Stability Communications during the COVID-19 Pandemic

The COVID-19 pandemic has led to the implementation of unprecedented policy actions by central banks around the world. Along with the reduction of interest rates and the use of asset purchase and lending programs, central bank communications have been actively deployed as a policy tool.

ADB COVID-19 Policy Database: A Guide

The ADB COVID-19 Policy Database displays the measures taken and monetary amounts announced or estimated by the 68 members of the Asian Development Bank, two institutions, and nine other economies (i.e., a total of 79 entries) until May 2020, to fight the coronavirus disease (COVID-19) pandemic. Measures are classified according to (i) the path a given measure takes to affect the financial system, spending, production, and so forth, i.e., provide liquidity, encourage credit creation by the financial sector, or directly fund households; and (ii) the effects on the financial statements of households, businesses, government, i.e., whether the measures create more debt or more income. This gives a total of nine categories. When the information is available, we report the amounts that governments have announced (intentions) they will allocate to each measure (in many cases, no amount is provided because the measure does not entail spending, e.g., interest rate reductions). These are a mix of actual amounts and estimates, today and in the future (without specifying when). The database will be updated, revised, and expanded as information is released. It is available at https://covid19policy.adb.org/ .

Thermoeconomic and feasibility analysis of novel transcritical vapor compression-absorption integrated refrigeration system

In this paper, a novel structure of transcritical vapor compression-absorption integrated refrigeration system (TVCAIRS) is proposed based on its thermoeconomic viability. The integration of single effect vapor absorption refrigeration system (VARS) (with H2O-LiBr fluid couple) in transcritical vapor compression refrigeration system (TVCRS) (with R744 refrigerant) provides a subcooling of 5 °C in the proposed configuration. Hence, the overall COP and exergetic efficiency of TVCAIRS is 28.6% and 26.9%, respectively higher than the equivalent standalone TVCRS with optimum gas cooler pressure and generator temperature. Besides, the requirement of external cooling water for the gas cooler, absorber and condenser cooling of TVCAIRS is 12.3% less than the equivalent TVCRS. The direction for the further process improvement of TVCAIRS is also presented. Further, the thermodynamic performance of proposed system is also investigated for low temperature refrigeration application and hot climate conditions. The comparative results showed that the present TVCAIRS is thermodynamically more efficient as compared to the equivalent TVCRS and conserves more water resources with effective recovery of waste heat for the sustainable development.The techno-economic analysis of proposed TVCAIRS shows a shorter breakeven point and payback period of 1.3 yr. and 1.8 yr., respectively with total annualized cost of INR 5,641,614 (17.8% less than the equivalent TVCRS). Further, selection diagram for TVCAIRS and equivalent TVCRS shows that TVCAIRS is more feasible as compared to the TVCRS under low temperature and hot climate conditions and its viability strongly increases, if financial incentives of reduced interest rate are offered with longer life designs and operation duty.

SMEs debt financing in the EU: on the eve of the coronacrisis

SMEs are the main drivers of economic development. As the debt crisis and coronavirus crisis show, despite their importance, they are extremely sensitive to economic downturns. Therefore, SMEs need to be supported through various tools. The paper is aimed at evaluating the SMEs’ bank and governmental support in the northern and southern EU countries in two crisis periods and assessing the financial state of SMEs on the eve of coronacrisis using micro-level data. It was proved that bank loans and credit lines remain the main sources of SMEs’ financing. After the debt crisis, banks are becoming more loyal to SMEs.It was proved that SMEs from the northern EU countries suffered less from the previous crisis and therefore started their recovery earlier than the southern ones in terms of profitability, liquidity and debt burden. In addition, it was shown that both groups on the eve of the new turbulence period were in better financial state compared to the previous debt crisis. The southern EU countries suffered more from both crises. At the same time, due to effective governmental support and bank loyalty, their SMEs entered the coronacrisis at the same level of financial stability as the northern ones. Since the new support measures are concentrated primarily in the banking sector through loan guarantee schemes and reduced interest rates, it is essential to provide debt financing to high-quality borrowers and avoid the debt crisis in southern counties.