Reduction In Interest Rates Research Articles

Bank connections and small business performance: Evidence from Canadian survey data

AbstractWe investigate how, as a form of social capital, connections between small business owners and their bankers affect the performance of small businesses in Canada through influencing capital structure efficiency. Owners of private Canadian small businesses were asked about their perceptions regarding bank connections, capital structure efficiency, and the performance of their small businesses. Using principal component analysis, we find that bank connections help small business owners improve capital structure efficiency. Connections are also associated with lower interest rates; however, we find that they improve performance primarily through their improvement of capital structure efficiency rather than reduced interest rates. These findings may prove practically useful for business owners, bankers, and other stakeholders by illustrating how effective policies that help link small business owners with bankers can improve firm performance through access to capital and professional advice.

CONHECIMENTO NECESSÁRIO PARA FUGIR DO JUROS NEGATIVOS

Interest rates in Brazil have historically been high and for this reason the form of investment in the country has always been unsophisticated, large investors made fixed income, as the CDI and small investors applied in savings. In the present national scenario 2019/2020, it is possible to observe that Brazil will have macroeconomic conditions very different from those experienced in recent years, with a decrease in the aggregate government supply, a reduction in the increase in public and household debt, and a great reduction in interest rates. interest. In the coming years it will be important to diversify investments, after all the phenomenon of negative interest in other markets will be a national reality. To obtain answers, quantitative and exploratoryapproaches were used, and later the comparative method, to corroborate the correlation between capital accumulation and the macroeconomic scenario. As a result, it was possible to ascertain that there is no correlation between the base interest rate and indebtedness, but that there is a relationship between the return on traditional investments and interest, at the same time, educational levels have a direct relationship with indebtedness and thus we conclude that there is a new monetary reality, but we still do not have a new reality for investors and borrowers in Brazil

Monetary policy news and systemic risk at the zero lower bound

AbstractThis paper employs a recent contribution to the construction of the shadow nominal interest rate during the zero lower bound episode and Greenbook forecasts to obtain a measure of monetary policy shocks over that time period. It then identifies monetary policy news shocks as a novel measure of the forward‐looking conduct of monetary policy in the U.S. Using the data from 1987—2010, it shows that neither monetary news nor surprises affected alternative measures of systemic risk over the full sample. However, monetary news shocks announcing future reductions in interest rates were effective in lowering most (but not all) systemic risk measures during the zero lower bound period, unlike monetary surprises.

Cross-Sectional Patterns of Mortgage Debt during the Housing Boom: Evidence and Implications

AbstractIn this paper, we use two comprehensive micro-data sets to study how the distribution of mortgage debt evolved during the 2000s housing boom. We show that the allocation of mortgage debt across the income distribution remained stable, as did the allocation of real estate assets. Any theory of the boom must replicate these facts, and a general equilibrium model shows that doing so requires two elements: (1) an exogenous shock that increases expected house price growth or, alternatively, reduces interest rates and (2) financial markets that endogenously relax borrowing constraints in response to the shock. Empirically, the endogenous relaxation of constraints was largely accomplished with subprime lending, which allowed the mortgage debt of low-income households to increase at the same rate as that of high-income households.

The Impact of Interest Rate Movement on Consumption and Output

Interest rate is considered one of the most important tools of monetary policy in Egypt, and it is the most used to maintain price stability and tackle inflation, here we study its effect on consumption and income in an econometric technique. This research is concerned with the study of the impact of interest rate shocks as an indicator of monetary policy on household consumption and Income in Egypt during the period from 1980 to 2018. The research applies the quantitative analysis approach and uses the econometric model to deduce results and uses a Small Structural Vector Autoregressive Model (SVAR). The research concludes that one standard deviation shock in interest rate shrinks consumption, but this very small and fast decrease is almost insignificant, while income initially increases in response to this positive shock. On the other hand, a negative shock in consumption causes a reduction in interest rate. the research also indicated a mutual relationship between consumption and income

A benchmark modelling for participation-based tax increment financing

PurposeThis paper aims to present the theoretical and conceptual framework of a new method in public finance called “participation based tax increment financing (P-TIF)” by combining conventional tax increment financing (TIF) within the Sharīʿah-compliance structure.Design/methodology/approachThis study develops a benchmark model for P-TIF, which offers a participative contract between both lender and borrower. With the help of this model, a financing schema in P-TIF is established by incorporating stochastic modelling. Possible implications and alternative options of application are also explored with a discussion of challenges.FindingsThe results mainly indicate that P-TIF promises lenders to be a part of increment from tax earnings, in return for a reduced interest rate. They show how a rise in participation of the lender in a given contract lowers the interest rate. Under the base case scenario, the interest rate is reduced to zero when the participation of the lender in tax increment is set at 50%.Practical implicationsWith the feature of being interest-free, P-TIF can be implied also within the Sharīʿah-compliance framework, thanks to the model it is based on. Additionally, as the model in this paper is parametric, it can be applicable to various cases in Islamic finance.Originality/valueTo the best of our knowledge, this is the first paper in the literature in the sense that it provides a conceptual idea and respective model for TIF method within a Sharīʿah-compliance framework.

Government and It's Directive - The COVID-19 Pandemic Effect

The Central Bank of Nigeria (CBN) in a bid to safeguard the economy on 16 March 2019 released a circular (the Circular) to Deposit Money Banks and the general public on CBN policy measures in response to COVID-19 outbreak and spillovers covering interest rate reduction, moratorium, loan term re-structuring for particular industries

Хеджування грошових потоків із використанням процентних свопів: облік за МСФЗ

The paper discloses the accounting treatment for cash flow hedge of exposure to risks arising from the changes in cash flows of financial instruments, in which interest rate swaps are used as hedging instruments. The author considers the economic meaning of hedge relationship as an instrument of reducing financial risks being inherent to financial assets and financial liabilities of the bank. The paper represents the purpose of the cash flow hedge as well as the mechanics of the interest rate swap as the most efficient instrument of the cash flow hedge relationship. The author analyzes the statements of IFRS 9 on the cash flow hedge accounting: recognizing the cash flow hedge reserve, assessing the portion of gain or loss on the swap that is either effective or ineffective hedge. The paper explains the procedures of the cash flow hedge accounting to reduce interest rate risks that arises from the changes in the cash flows of floating-rate financial liabilities. In particular, the paper covers the procedures of the fair value measurement of a hedging instrument as the present value of the difference between cash inflows and outflows discounted at spot rates for each period. The author discloses the accounting for the cash flow hedge: the accrual of interests on the financial liability, the change in the fair value of swap, the net settlement of the interest on swap, the reclassification of the interest on swap and settlement of interests on the financial liability. The article suggests the accounting procedures comply with the requirements of IFRS 9 on the cash flow hedge accounting and recommends the implementation to Ukrainian banks.

Penerapan Vector Error Correction Model pada Variabel Makro Ekonomi di Indonesia

In this time, the countries can be said to be in a good condition of the national economy if there are some indicators in positive economic macro, it is including the decline of inflation, the amount of money circulating is also decline, and the exchange rate strengthening against foreign currencies and reduced interest rates. The purpose of this study is to analyze the causality and cointegration relationships of economic macro variables, by using time series data for 2010-2019 and using the VECM model. The results of the study found that there is no causality relationship between inflation and the BI rate. Likewise, the variable money supply does not affect the BI rate. The exchange rate also does not affect each other on the BI rate variable. Causality test results also indicate that the money supply does not have a causality relationship to inflation, while the exchange rate variables influence each other on inflation. To exchange rates, it does not give affect in the variable amount of money in circulation each other. By explanation of the estimation results of the VECM model, it shows the long-term and short-term relationships of each variable generally.

Owe a Bank Millions, the Bank Has a Problem: Credit Concentration in Bad Times

How does a bank react when a substantial share of its borrowers suffer a large negative shock? To answer this question we exploit the 2014 collapse of energy prices using the universe of Mexican commercial bank loans. We show that, after the drop in energy prices, banks exposed to the energy sector increased their exposure to these borrowers even more, relaxing credit margins to their larger debtors in the sector. An increase of one standard deviation in a bank's ex-ante exposure to the energy sector increased the loan volume to borrowers in the sector by 18 percent and reduced interest rates by 6 percent, even though borrower's credit default swap spreads were widening. Highly exposed banks amplified this sector-specific shock to the rest of the economy by contracting lending to other sectors, with important real effects, as the borrowers could not switch credit suppliers. Finally, the energy price shock had a large negative impact on macro outcomes, especially in the capital-intensive secondary sector. Quantitatively, a one standard deviation increase in the exposure of a state's banks to the energy sector reduced its GDP by 1.8 percent.

The implicatons of covid-19 pandemic

Abstract Throughout history, the world has faced various types of pandemics that not only threaten human health, but also greatly affect social and economic aspects. Recently the world is suffering from a pandemic, which is caused by the Covid-19 virus that began in Hubei Province, China. Southeast Asia geographically close to the virus outbreak and as a region consisting of a majority of developing countries, SEA’s economic situation will be greatly affected by the spread of this virus. Throughout the Southeast Asian region, ASEAN helping its members by taken various measures and recommendation to counter the spread of the pandemic. Some efforts to stimulate these goals are carried out by eliminating taxes among ASEAN members, provide subsidies in the form of cash assistance for vulnerable parties, moratoriums on loan payments, pension contributions, and cooperate with external partner to deal with the pandemic. The central bank also reduced interest rates, reduced reserve requirements, and purchased government bond. Using qualitative approach and descriptive method, this article will explain and explore about the economic policy in the Southeast Asian region during the Covid-19 pandemic. Keywords: Pandemic; Economic Policy; ASEAN

Watering a lemon tree: Heterogeneous risk taking and monetary policy transmission

We build a general equilibrium model with financial frictions that impede monetary policy transmission. Agents with heterogeneous productivity can increase investment by levering up, which increases liquidity risk due to maturity transformation. In equilibrium, more productive agents choose higher leverage than less productive agents, which exposes the more productive agents to greater liquidity risk and makes their investment less responsive to interest rate changes. When monetary policy reduces interest rates, aggregate investment quality deteriorates, which blunts the monetary stimulus and decreases asset liquidation values. This, in turn, reduces loan demand, decreasing the interest rate further and generating a negative spiral. Overall, the allocation of credit is distorted and monetary stimulus can become ineffective even with significant interest rate drops.

The Role of Financial Inclusion in Women Entrepreneurs in Small and Medium Enterprises: Evidence from South Western Nigeria

The study examines the role of financial inclusion in women entrepreneurs in Small and Medium Enterprises (SMEs) with particular reference to southwestern Nigeria. Purposive sampling technique was employed to select 120 respondents from Lagos, Abeokuta, Ibadan, Osogbo, Akure and Ado-Ekiti. A structured questionnaire designed for the study was used to collect data. Data analysis was performed with helps of mean, frequency, and simple percentages. The result shows that contribution, cooperative society, family and friends, and non- governmental organizations are the main sources of finance of women entrepreneurs in SMEs, while only a few financial products being offered by financial institutions are known to women entrepreneurs in SMEs. Therefore, the study recommends that women entrepreneurs in SMEs should be sensitized about the availability of financial products/services being offered by financial institutions, relaxing the conditions attached to loans, reduction of interest rate, and bring internet banking closer to the people especially women entrepreneurs in rural areas.

Dinamika Kebijakan Program Kredit Usaha Rakyat (KUR) di Indonesia

This study aims to: 1 ) analyze the development of regulations, governance and the Kredit Usaha Rakyat scheme; 2 ) analyze s interest subsidy policies in the Kredit Usaha Rakyat Program; and 3) analyze the development and performance of the distribution of the Kredit Usaha Rakyat Program . This type of research used associative descriptive research with research indicators are regulations, interest rates, realization and debtors on the distribution of the Kredit Usaha Rakyat Program . The research period is conducted from 2008 to 2019 with observations on banks channeling Kredit Usaha Rakyat Program . The results of the study explained that during the period 2008 to 2019 there were 37 regulations governing the governance of the Kredit Usaha Rakyat Program, there was a change in management from a credit guarantee scheme to an interest subsidy scheme that had an impact on reducing interest rates, increasing the realization of the distribution and debtors of the Kredit Usaha Rakyat. https://doi.org/10.26905/jmdk.v8i1.4247

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.

Investors with the Golden-i: Preference in Gold-i Investment

Gold price has risen recently after the United States implemented a drastic monetary action by reducing interest rate to almost zero to cushion the effect of Covid-19 pandemic on the economy. However, what has actually triggered the gold price could be beyond Covid-19. Therefore, this study examines the factors influencing customers’ preference in gold investment (Gold-i). Two variables; inflation and income growth are significant while interest rate is not significant in relation to Gold-i preference. Since interest rate relates to the strength of US Dollar, central bank reserves and investment demand, it could be postulated that during the study in 2019, interest rate and gold price had risen in tandem. This research further enriches knowledge and contributes to advancement of research in gold investment, hence enabling researchers, bankers, investors, trade policy makers to further understand the investment in gold-i during economic crises, in particular the current recession triggered by the Covid-19 pandemic.

Еврозона на пороге повсеместных отрицательных процентных ставок

The global economy, including the eurozone, experienced a shock in 2008. As one of the consequences, central banks of the largest economies in the world, in order to support economic activity, reduced interest rates on loans. Although 11 years have passed, in the eurozone lending rates still remain extremely low. This indicates that the monetary union has not yet recovered from the post-crisis state. In fact, more and more probable is becoming a recently inconceivable scenario that the eurozone for a long time will get into the era of negative interest rates

COVID-19 and Monetary Policy with Zero Bounds: A Cross-Country Investigation

Using daily data on policy rates from 28 advanced economies and 32 emerging markets, this paper investigates the monetary policy reaction function of central banks during the Coronavirus Disease 2019 (COVID-19) outbreak. The results show that emerging markets or countries without a zero bound on their interest rates were able to reduce interest rates as a reaction to reduced economic activity and to the volatility in their exchange rates, whereas advanced economies or countries with a zero bound on their interest rates were not. Several policy implications follow for countries with a zero bound on their interest rates amid COVID-19.

Responses of monetary policies to oil price changes in Malaysia

Malaysia is one of the net oil-exporting countries that the government budget depends highly on oil revenues. The dependency on uncertain revenues faces the economic development of the country with significant challenges. Therefore, the monetary authorities need to be aware of the importance and the role of their policies on the economy in response to changes in global oil prices. For this purpose, this paper simulates the responses of monetary policies to changes in global oil prices in Malaysia using a financial computable general equilibrium (CGE) model. It considers both changes (a rise and a fall) in global oil prices. The simulation results indicated that the Malaysian economy, as a whole, and the majority of industries gain from oil price rise and lose from oil price fall. Both shocks lead to the reallocation of resources and influence the financial part of the economy. Results also showed that tightened monetary policies are not able to reduce the negative effects of both shocks on economic growth and industrial output while the expansionary policies, particularly the combination of interest rate and reserve ratio reductions, are effective and are beneficial for economic growth and industrial output of Malaysia. If the government target is minimizing the rate of inflation, the effective policy in response to both global oil price changes is the reduction in interest rate. However, when the government target is more investment and labor employment, the effective policy is the reduction in reserve ratio rate in response to both oil price changes.

Financial Risk in the Austrian Theory of the Business Cycle

The ABCT is a description of the boom and bust of an economy following a reduction in the banks’ interest rate to a level below the equilibrium or natural rate. While descriptions of the theory emphasize the imbalance between consumption and investment that ensues the artificial decrease in the interest rate, often the driving force that impels firms to embark in new investment projects that will subsequently reveal themselves unsustainable is obfuscated. This initial decrease in the interest rate makes the present value of investments and assets rise, thus inducing an upsurge in investment, but also causes both the debt/equity ratio and the number of risky projects to increase, causing an intensification in the financial risk of the overall economy. At the same time, as some prices are less flexible, like wages and depreciation costs, this, added to the reduced interest rate, accentuates a rise in nominal profits that seems to validate an increase in investment and consumption. But as the real demand of the economy starts to reveal the unsustainability of those investments, the great exposure of the economy to financial risk creates an increase of defaults in payments and a subsequent reduction in credit bank which, in turn, increases banks’ market interest rate, reduces money supply, increasing the real value of debts which, added to the fact that profits lose steam due to the catching-up of costs with revenue prices, leads the economy into a recession.