Reduction In Interest Rates Research Articles

Impact Of Demonetization On The Economic Parameters That Affect The Growth Of Nonperforming Asset Of Indian Banks

The demonetization decision by the government of India affected almost all service sectors of Indian economy, out of which the banking sectors were affected the most. Due to demonetization bulk amount of old currency notes of INR 500 and INR 1000 were deposited to banks; that not only increased the capital base of banks, but those un-used cash boosted the liability of loan disbursement. Again the reducing interest rates, providing account opening facility and issuing loan to the depositors by banks without judging their repayment ability resulted a chance of increasing number of defaulters and the value of nonperforming assets. Considering the scenario the present research work tried to focus on the impact of demonetization towards the movement of nonperforming assets of Indian banks. A multivariate regression analysis was performed by considering income, expenditure and net profit ratio as internal and the percentage change of India’s GDP, inflation and foreign exchange rate as external independent variables towards the net nonperforming assets changes of Indian public and private sector banks as dependent variable from financial year 2016-17 to 2018-19. Though the outcome of the study revealed that demonetization helped to reduce the nonperforming asset values in short run but in long run it would stimulate the growth of nonperforming assets.

The impact of small loan programmes on employment for micro and small enterprises: evidence from a province in Iran

ABSTRACTGovernments have developed small loan programmes with a reduced interest rate to decrease unemployment in Iran. Using longitudinal, firm-level data from 2005 to 2010 in Iran, this study examines the effect of one Iranian province’s loan programme on employment based on two different methods of evaluating causal effects. The first method applies a difference-in-difference fixed effects matching estimator to estimate the employment effect of the programme. The second method applies the generalized propensity score to estimate the impact of the amount of a loan on employment. The results from the first method suggest that the loan programme has a positive and significant effect on the employment of treated firms. The results from the second method suggest that the estimated employment effects increase with the amount of the loan, whereas there is a decrease in the marginal effects of an additional amount of loan.

The impact of economic policy instruments on the conditions of sustainable economic growth

Given the low rates of economic growth in Russia and the aggravation of the geopolitical situation, the question of the prospects for its stimulation with fiscal and monetary policy tools is of particular relevance. The main priority of the economic policy is to ensure financial stability and prevent destabilization, taking into account the volatility of hydrocarbons prices and the geopolitical tensions. The article uses dialectical materialistic and concrete historical methods to protect that the current economic policies should be focused on sustainable economic growth. It is necessary to form a new strategy of monetary regulation and budget policy that would contribute to the sustainable development of the Russian economy and ensure the economic security of the country. In the perspective of maintaining sustainable economic growth, it is important to solve the problem of equitable distribution, expressed in a strong stratification of society and the violation of social stability, the implementation of economic policy at the level of macroeconomic planning; it is advisable for the Central Bank to follow the link between the possible range of inflation and economic growth; to stimulate consumer and investment demand by reducing interest rates, to form money supply not due to linking gold and foreign currency reserves, but under the issue of securities, to increase budget expenditures and increase public debt for the sake of investment in education and health care.

Development of a set of limits for the main performance indicators of energy-generating companies

Restrictive conditions established on average throughout the organization, which each energy-generating company should strive to carry out, have been proposed and analyzed. In order to ensure a sustainable level of financial stability, the calculation of the use of debt coverage and debt service limits is predicated. Fulfillment of the established limits should be taken into account in the formation of investment programs, which the energy-generating company intends to implement, which should imply the corresponding energy-generating company certain preferences, for example, a reduced interest rate on loans, which in turn increases the efficiency of the investment project of the organization and leads to more economic efficiency of the tariff method RAB-regulation.

China’s Debt Relief Actions Overseas and Macroeconomic Implications

We provide a novel database of 140 cases of official debt restructurings that China conducted between 2000 and 2019 in 64 debtor countries. The database shows that China has executed the majority of debt restructurings through debt forgiveness rather than through debt rescheduling, such as maturity extension and/or interest rate reduction. We also find that one third of China’s debt restructurings in the database took place within a four-year time frame of debt relief agreements with the Paris Club and that more than half of the restructurings were conducted in the context of a financial assistance programme from the International Monetary Fund. Using local projections, we find a negative impact of China’s debt restructurings on growth and development prospects in debtor countries, especially when China provides debt rescheduling and does not reduce the stock of nominal debt. Subdued domestic fixed capital investment and fiscal policy tightening seem to be the main drags on economic growth in debtor countries after a restructuring.

Nonlinearities in Central Bank of Tunisia’s Reaction Function: Pre-and Post Revolution Analysis

This paper seeks to check the existence of possible nonlinearity in the behavior of the Central Bank of Tunisia (CBT) in response to changes in macroeconomic variables over 2000:1-2018:12 period (pre-and post-2011 revolution). We used a general model with asymmetric loss function, which enables Central Bankers to weight differently positive and negative deviations of inflation and output from their reference values, as well as a nonlinear economic structure. The empirical analysis reveals that in the pre-revolutionary period, the CBT, for the sake of financial stability approved asymmetric preferences only toward the inflation rate in the sense that it reduces interest rate by a larger amount when inflation is expected to be below the target than the amount it will increase it when it is expected to be above target. During the post-revolutionary period, which was marked by a severe economic recession, the CBT also showed asymmetric preferences toward the output stabilization as it reacted more vigorously to recession. Nevertheless, for a sufficiently large inflation pressure strengthened by the nonlinear economic structure, the CBT is obliged to enhance sharply the political instrument and to carry out a strict restrictive monetary policy.

Intermediation Below Zero: Effects of Negative Interest Rates on Banks' Performance and Lending

Reducing interest rates below zero may be justified on theoretical grounds while, in practice, it is shown to create a number of distortions and malfunctions in several dimensions of banking and financial markets, which in turn may affect the whole economy. This paper surveys international experience of negative interest rates and the existing theoretical and empirical research of the impact on banks. It also investigates the impact of negative interest rates on the European banking sector using a dataset of 3,155 banks from 36 European countries over 2011–2018. Using a difference-in-differences methodology, we show that banks in negative interest-rate environments experienced a 18.4% decrease in their net interest margins compared to other banks operating in European countries that did not adopt negative interest rates. We also show banks taking more customer deposits are more affected.

Do remotely-sensed vegetation health indices explain credit risk in agricultural microfinance?

• Agricultural lenders face the risk of delayed installment payments, especially in years with severe weather conditions. • Remotely-sensed vegetation health indices are negatively correlated with credit risk. • Credit risk is explained, to a large extent, by these vegetation health indices. • The explanatory power of the vegetation health indices increases in the upper quantiles of the distribution of credit risk. • Index insurance based on vegetation health indices is likely to be helpful for lenders, and in turn, to improve farmers’ access to credit. Farmers’ vulnerability to adverse weather events, which are likely to increase in frequency and magnitude due to climate change, is a major impediment to a sufficient credit supply. Smallholder farmers’ access to credit is, among other factors, crucial for productivity and output growth. Index insurance could help lenders to compensate for lacking installment payments in years with severe weather conditions and, thus, is considered to accelerate agricultural lending. Using a unique borrower dataset provided by a Microfinance Institution (MFI) in Madagascar, we analyze whether remotely-sensed vegetation health indices can explain the credit risk of the MFI’s agricultural loan portfolio. Therefore, we utilize sequential logit models and quantile regressions. More specifically, we consider the remotely-sensed Vegetation Condition Index, Temperature Condition Index and the Vegetation Health Index as independent variables at the individual branch and the aggregated bank level. These indices are available globally and can potentially enhance the effectiveness of index insurance by reducing basis risk (imperfect correlation between the index and the underlying exposure), a major drawback of index insurance. Moreover, we consider loan- and socio-demographic variables of the borrowers as additional independent variables. Our results show that the credit risk of the MFI is explained, to a large extent, by the vegetation health indices. Moreover, the results from quantile regressions show that the explanatory power of the vegetation health indices increases with increasing credit risk. Thus, utilizing remotely-sensed vegetation health indices for index insurance designs might be particularly valuable for MFIs to hedge the credit risk of their agricultural loan portfolio. Facing lower default rates, MFIs could reduce interest rates. Remotely-sensed index insurance could therefore enhance access to credit, contributing to sustainable development in the study region.

Do monetary policy transparency and central bank communication reduce interest rate disagreement?

AbstractYes. This study produces evidence that monetary policy transparency and communication policy of the Bank of England have information content in reducing disagreement about interest rate forecasts. Different from most extant studies employing the transparency index derived from official documents of the central banks, this study extends the literature by using a recently developed market‐based monetary transparency index. Moreover, this study analyzes forecast disagreement in a multivariate perspective based on survey data of short‐ and long‐term rates over short and long horizons. This study characterizes several patterns on forecast disagreement related to maturities of interest rates, forecast horizons, recessions, forward guidance, credibility, transparency, and communication policy. Interestingly, disagreement among the Monetary Policy Committee in policy rate decisions is associated with lower disagreement among professional forecasters on interest rate outlook, whereas neither announcement of changes in policy rates nor publication of inflation reports affects forecast disagreement. These results have important implications for monetary policymakers in managing market expectations of interest rates.

Effects of regulatory changes in microcredit on the financial and social performance of Brazilian credit unions

ABSTRACT This study investigates whether the performance of credit unions that offer microcredit in Brazil was affected by the advent of Crescer - the National Microcredit Program. This research fills a gap in the literature because few papers investigate credit unions that work with microcredit and also the effects of governmental interventions related to microcredit operations. Studies of this type may help evaluate the impact of governmental interventions on the performance of the institutions that are directly or indirectly affected. Our results add to the debate about microcredit and about the inclusion of credit unions in this market. In particular, our evidence may influence the design of public policies and the strategies of microfinance institutions, which typically combine economic and social objectives. Based on the literature, we calculate fifteen indicators for each credit union, related to their financial and social performance. The inferences are based on the implementation of the difference in differences estimator using the advent of Crescer, in 2011, as the exogenous event of interest and including in the control group the credit unions that did not provide microcredit loans throughout the sample period. This research presents evidence that the volume of clients and microcredit operations performed by Brazilian credit unions was positively affected by regulatory changes that took place in 2011, consistently with the objectives of the governmental intervention. The evidence also suggests that the governmental intervention did not harm the financial sustainability of the credit unions. The main changes are: a substantial reduction of interest rates and transaction costs, the implementation of subsidies to participants in the program, and a push for public banks to enhance their supply of productive and oriented microcredit.

Albania's Monetary Policy and the Basic Indicators that Effect the Economic Growth

Macroeconomic policies aim to stabilize the economy by achieving their goal of price stability, full employment and economic growth. Price stability is the responsibility of macroeconomic policies that are developed to maintain a low inflation rate, contribute to the solidity of the domestic product and maintain an exchange rate that can be predictable. The purpose of this paper is to analyze Albania's monetary policy by highlighting the main indicators that can be used as a measurement of the efficiency of this policy in the economic development. The literature review shows that there are many attitudes regarding the factors that need to be taken into consideration when analyzing monetary policies, including the elements of fiscal policies. In the Albanian economy, the prices and the level of inflation are the most important aspects. The Bank of Albania uses the inflation targeting regime, considering that the main indicator of inflationary pressures in the economy is the deviation of inflation forecasted in the medium term by its target level. In numerical terms, the bank intends to maintain its annual growth in consumer prices at the level of 3%. According to the latest reports published by the Bank of Albania in 2019, monetary policy continues to contribute positively to a financial environment with a low interest rate and an annual inflation rate of 2%. Although the inflation rate hit the lowest value of 1.8 % in 2018, a balanced rate was achieved through the reduction of interest rates and risk premiums in financial markets and, more recently, through the tightening of the exchange rate. These monetary conditions are appropriate to support the growth of domestic demand and the strengthening of inflationary pressures.

Before We Talk About Student Debt Cancelation, Can We Talk About Interest Rates?

Recently, several presidential candidates in the Democratic primary have created media buzz with policy proposals to eliminate debt (either partially, or completely) for millions of Americans.1 Given the rise in tuition prices and growing debt for pharmacy graduates over the past decade, these proposals may offer hope for those still drowning in debt and potentially resentment for others who sacrificed making other investments to pay down student loans.2-4 While bold policy proposals help make great sound bites and campaign ads, they may also divert attention from more pragmatic solutions where a larger majority of people with different political biases could come to consensus. This commentary focuses less on flashy political rhetoric and more on a boring aspect of student loans: the mathematical components of debt. Using the Class of 2017 exiting survey data published by the American Association of Colleges of Pharmacy (AACP) Office of Institutional Research & Effectiveness,5 this article aims to demonstrate how more moderate steps to reduce interest rates may offer relief for pharmacy graduates while avoiding potential resentment and other unintended consequences.4.

Monetary Policy, Rational Confidence, and Neo-Fisherian depressions

When inflation is below its target conventional central banking practice is to decrease the nominal interest rate. The reasoning behind this practice is that reducing interest rates increases spending, heats up the economy and increases inflation. However, this conventional wisdom has recently been challenged by several prominent economists who argue that under a monetary policy rule that targets a nominal interest rate, that rate must rise in order for trend inflation to rise since it is the Fisher relation – i.e., the proportional relationship between changes in the nominal interest rate and expected or trend inflation – which governs the long-run behaviour of both variables. We show that the Neo-Fisherian claim is a theoretical possibility depending on the interplay of a set of parameters and very low levels of agents' confidence in the central bank's ability to keep inflation on target by means of conventional monetary policy. Yet we may say that this possibility is remote for most commonly found empirical values of the relevant parameters.

MORTGAGE AS A TOOL FOR ADDRESSING HOUSING NEEDS

Mortgage lending is investigated as an effective tool for solving residential problems of the country’s population. The advantages and disadvantages of types of mortgage loans and models of the mortgage market are considered. The German (one-tier) model and the American (two-tier) model of the mortgage market are characterized. Conclusions have been made regarding the state of mortgage lending in European Union countries. The interest rates on mortgages in the countries of the world are analyzed and differences of mortgage lending are revealed in some of them. An estimation of the state of mortgage lending in Ukraine is given. The issue of state support to the mortgage sector is considered, which will facilitate the intensification of investment activity in this area and housing construction. The socio-economic motives of effective solution of the housing problem of residents of the Vinnytsia region were revealed, the analysis of the domestic normative-legal base and application of its norms in practice were carried out. Study of foreign experience has provided an opportunity to highlight different methods by which the state regulates relations in the process of mortgage lending. The peculiarities of provision of mortgage loans to the citizens of the country are highlighted and ways of further development of mortgage lending in Ukraine are elucidated, which can timely and adequately respond to external and internal challenges and threats, and strengthen the economic security of the state. The ways of further development of mortgage lending in Ukraine are suggested: development of the strategy of mortgage market development taking into account foreign experience, introduction of a mortgage insurance system, stimulating the population to mortgage and increasing the amount of social programs, creating of a quality bail on mortgage loans, securitization of the mortgage lending market, reduction of interest rates on mortgages etc.

The Essence of Optimism of The Economists and Investors with Regard to the Economy of Russia

The gross domestic product of Russia, expressed in US dollars, indicates problems in the Russian economy associated with the decline in oil prices on the world energy market and the consequences of the sanctions of the United States and the European Union against Russia. The crisis situation of the Russian economy has a negative impact on the income of the population of country, represented mainly by wages. However, an economist or investor may be optimistic about Russian economic development in the medium term. This optimism is related to the economic policy of the United States. The expansion of the United States economy within the global space, based on economic growth, requires maintaining inflation within the target level and weakening the US dollar. These tasks are solved with the help of soft monetary policy of the US Federal Reserve System. The reduction of interest rates by the US Federal Reserve System against the background of inflation of the target level and the devaluation of the US dollar will contribute to economic growth in the United States, because it will lead to the depreciation of public debt, lower consumption of imports, increase in exports and trade balance, growth of production, income, consumption. The economic policy of the United States, which contributes to the devaluation of the US dollar, will also reduce the US dollar against the ruble. The optimistic view of investors-economists on the Russian economy is due to a significant strengthening of the ruble against the US dollar. Consequently, in the medium term, the gross domestic product and wages of citizens of Russia, expressed in US dollars, will significantly increase, and the purchasing power of the national currency of the country will also increase. This growth may continue until the next election of a new President of the United States in november 2020. After the election of the new President of the United States, there is a high probability of sanctions against Russia and of decline in oil prices in the world energy market in accordance with the future economic policy of the United States – two main reasons for the sharp strengthening of the US dollar against the ruble, which will cause a deeper economic crisis in Russia in the medium and long term.

Economic Analysis of Internal Circulation Biodigesters and Vinasse Concentrators for the Generation of Electricity, Fertilizers, and Carbon Credits in Various Brazilian Economic Scenarios

Vinasse is one of the byproducts of ethanol production, where it is considered to have a high polluting capacity. However, this same byproduct can be used to produce electricity, fertilizers, and biogas from anaerobic biodigesters and vinasse concentrators. Based on the foregoing, a study on the use of vinasse is justified, guided by the following question: what is the economic feasibility of the use of the internal circulation (IC) biodigester, vinasse concentrator, and the conjugate of both in three Brazilian economic scenarios (I, fertilizers, electricity and carbon credits with minimum attractiveness rate (MAR) of 10.5% per year (p.a); II, electricity and carbon credits with MAR of 10.5% p.a; and III, electricity and carbon credits with MAR of 5% p.a and tax exemption)? The general objective is to analyze the economic feasibility of the separate use of vinasse concentrators, IC biodigesters, and the use of both together. The methodology used for the economic feasibility analysis was to calculate the net present value (NPV), internal rate of return (IRR), payback and discounted payback, which were calculated for a production range of ethanol ranging from 500 to 4000 m3/day. As a result, it can be seen that fertilizer prices are important in terms of economic feasibility. Scenarios without tax exemptions and a high MAR are feasible only with sale of fertilizer. Electricity alone will only be feasible in a scenario with a low MAR and tax exemptions. The following measures are thus necessary to enable the use of vinasse to generate electricity: a reduction in interest rates, tax exemption policies for renewable energy, legal impediments to the disposal of vinasse in the soil, and the implementation of policies to encourage the use of biogas.

Competition and microcredit interest rates: international evidence

The limited number of existing papers that link competition among microfinance institutions (MFIs) and microcredit interest rates, provide inconclusive and counterintuitive results. This paper uses data from 1997 MFIs operating in 109 countries between the years 2003 and 2016 to construct three measures of competition and evaluate their impacts on interest rates. These measures reflect three different aspects of competition: geographical expansion, market concentration, and the marginal pricing. While the results for market concentration are inconclusive, the results for both geographical expansion and marginal pricing show an economically strong impact of competition on interest rates. Specifically, regardless of whether an MFI is a for-profit or nonprofit, we find meaningful evidence that competition reduces interest rates. Our findings evince that lower interest rates are needed if the microfinance movement is to continue to be relied on as an effective means to alleviate poverty.

Balance sheet changes and the impact of financial sector risk-taking on fiscal multipliers

We analyse implications of financial sector dynamics for fiscal expenditure multipliers in recessionary conditions. A new stock-flow consistent model is developed in which a financial sector with four financial instruments is integrated with the real sector. The transmission of policy innovations occurs through balance sheet effects. Higher government expenditure increases aggregate demand in the economy. This reduces the perceived probability of default on financial institutions’ loans, increases asset valuations, and leads financial institutions to reduce interest rate spreads. Expectations of higher future wealth and a reduction in credit constraints supports consumption growth. Stronger balance sheets across institutions and lower interest rates increase investment. The interaction between growth and balance sheet valuations creates financial accelerator effects though its impact on financial sector risk-taking. Inflows of foreign savings can increase the multiplier further than would be the case in a closed economy constrained by domestic savings. The results show that fully modelling interactions between real and financial sectors generates fiscal multipliers higher than have been found for South Africa in other types of model.

Is ECB Rocking the Boat? Unconventional Monetary Policy in the EMU and Volatility Spillovers to Poland

ABSTRACTThe aim of the paper is to investigate volatility spillovers (i.e., spillovers in-variance) between the monetary policy stance of the European Central Bank and macro-financial variables in Poland. The monetary policy of the ECB is approximated by the shadow interest rate which takes into account various non-standard policy measures. We then perform event study regressions using several leading policy announcements and actions of the ECB. We find that volatility spillovers from the ECB’s unconventional policies to Poland were time-varying but modest for the entire period of 2008–2018. There is relatively scarce evidence on the structural changes in the dynamic conditional correlations for the POLONIA rate and EUR/PLN exchange rate. More pronounced volatility spillover effects are identified for the long-term interest rates after the first substantial reduction of interest rates in the EMU in 2008, and following the introduction of the negative interest rate policy in 2014. We find no significant evidence of spillovers associated directly with the implementation of more advanced unconventional tools, such as long-term refinancing operations or the Asset Purchase Programme.

CONDOMINIUM HOUSING AFFORDABILITY: THE CASE OF PUBLIC SERVICE EMPLOYEES IN ADDIS ABABA

The study assesses purchase affordability and constraints in accessing condominium housing for public service employees. The analysis is based on two categories i.e. academic and non-academic employees in relation to government sponsored condominium housing market. The types of data employed are secondary, transfer cost of condominium units by type and salary scale of public service employees. To determine the purchase affordability, capacity of public service employees’ maximum allowable loan to income or affordable limit (AL) and median income are employed. The analysis based on affordable limit computed in five different payment modalities disclosed purchase affordability is positively affected by reduced interest rate and extended duration of mortgage payment. As a result of this the academic employees are found better than the non-academic employees in purchase affordability. The median income analysis revealed the great majority of the non-academic employees earn below the median income and do not afford to purchase even the cheapest type unit. This signifies the degree of influence of income/salary in determining purchase affordability. Next to income higher interest rate and shorter duration of payment are found to be constraints of purchase affordability for both groups i.e. academic and non-academic employees. To mitigate the challenges of purchase affordability, preferential treatment (reduced interest rate and extended duration of mortgage payment) and alternative delivery strategies such as public provision of serviced land and facilitating access to housing finance are appropriate measures to be considered. Keywords: Purchase Affordability, Public Service, Affordable Limit, Condominium