Reduction In Interest Rates Research Articles

Taxing versus subsidizing debt under financial frictions

AbstractWe examine optimal credit market policies in two models with durables/capital as collateral. Pecuniary externalities rationalize ex-ante debt taxes as macroprudential regulation, achieving constrained efficiency. Ex-post debt subsidies can implement first-best by stimulating collateral demand. Due to the same effect, debt subsidies that are constant over time can be superior to debt taxes. Saving subsidies can further enhance efficiency by addressing distributive effects of pecuniary externalities via interest rate reductions. The analysis shows that debt-increasing subsidies can outperform macroprudential regulation, and that constrained inefficiency caused by collateral externalities is insufficient to establish debt taxes as optimal credit market policies.

Quantifying the spillover effects of U.S. economic policy uncertainty on emerging market economies using GMM-PVAR model

This paper quantifies the spillover effects of economic policy uncertainty (EPU) in the United States on emerging market economies (EMEs). Using a generalized method of moments (GMM) estimation of a panel vector autoregression (PVAR) model on a dataset­ of 39 EMEs from 2005 to 2019, we find that increased U.S. EPU significantly raises the consumer price index (CPI) and negatively impacts the real GDP of these economies. Additionally, heightened U.S. EPU leads to a depreciation of emerging market currencies and a reduction in short-term interest rates. We employ a news-based EPU index developed by Baker et al. (2016) and conduct robustness checks using forward orthogonal transformation, an alternative EPU index, and by addressing the potential endogeneity of the oil price uncertainty (OPU) index. Our findings highlight the adverse effects of U.S. economic policy uncertainty on key macroeconomic variables in emerging markets, underscoring the importance of stable economic policies and robust institutions to mitigate these impacts.

The Impact of Crisis-Period Interest Rate Declines on Distressed Borrowers

Abstract We measure the causal impact of reductions in benchmark interest rates on the renegotiation and performance of distressed loans, using 2000s subprime mortgages as a laboratory. Subprime borrowers treated with larger benchmark rate reductions benefited from increased debt-renegotiation probabilities and lower debt-service payments. Modification rates were similar among current and delinquent borrowers but higher for real estate investors, highlighting the role of financial acumen in renegotiation. Renegotiations also reduced longer-run foreclosures, but treated borrowers who lingered in delinquency offset these benefits. Findings suggest monetary easing can spur debt renegotiation but alone may not lead to longer-run curative outcomes.

A Co-Integration Approach to Assess the Impact of Nigeria Monetary Policy on Economic Growth

This research examines the impact of Nigeria’s monetary policy on her economic growth by developing a model that is able to investigate how monetary policy of the government has affected economic growth through the adoption of multi-variable regression analysis. GDP representing economic growth which was used as the dependent variable against the explanatory variables which is Monetary Policy Variables: money supply, exchange rate, interest rate, and inflation rate. The time series data is the market-controlled period covering 1960-2020. The study determined the relationship between monetary policy instruments and GDP, and it also determined the adequacy of the model. The study adopted a co-integration approach and also conducted a unit root test. The study showed that monetary policy variables included in the model has combined significant impact on GDP in Nigeria. In addition, the core finding of this study showed that exchange rate and money supply have positive and statistically significant relationship with GDP in Nigeria. However, inflation rate has negative impact on GDP and a non-statistically significant relationship with GDP, interest rate has positive and statistically insignificant relationship with GDP. The results from the study proved that monetary policy have a significant relationship with GDP. In conclusion, based on the outcome of the Study. The study recommended among others that the regulatory authority (CBN) is advised to reduce interest rates and increase money supply such that both loans and funds will be easily accessed by manufacturing/industrial outlets to enhance manufacturing output in the Nigeria economy.

Microcredit Pricing Model for Microfinance Institutions under Basel III Banking Regulations

Purpose. The purpose of this research is to propose a tool for designing a microcredit risk pricing strategy for borrowers of microfinance institutions (MFIs). Design/methodology/approach. Considering the specific characteristics of microcredit borrowers, we first estimate and measure microcredit risk through the default probability, applying a parametric technique such as logistic regression and a non-parametric technique based on an artificial neural network, looking for the model with the highest predictive power. Secondly, based on the Basel III internal ratings-based (IRB) approach, we use the credit risk measurement for each borrower to design a pricing model that sets microcredit interest rates according to default risk. Findings. The paper demonstrates that the probability of default for each borrower is more accurately adjusted using the artificial neural network. Furthermore, our results suggest that, given a profitability target for the MFI, the microcredit interest rate for clients with a lower level of credit risk should be lower than a standard, fixed rate to achieve the profitability target. Practical implications. This tool allows us, on the one hand, to measure and assess credit risk and minimize default losses in MFIs and, secondly, to promote their competitiveness by reducing interest rates, capital requirements, and credit losses, favoring the financial self-sustainability of these institutions. Social implications. Our findings have the potential to make microfinance institutions fairer and more equitable in their lending practices by providing microcredit with risk-adjusted pricing. Furthermore, our findings can contribute to the design of government policies aimed at promoting the financial and social inclusion of vulnerable people. Originality. The personal characteristics of microcredit clients, mainly reputation and moral solvency, are crucial to the default behavior of microfinance borrowers. These factors should have an impact on the pricing of microcredit.

Modelling Bank Lending in Cameroon Using Two Steps Cointegration Technique

This paper has as objective to model the key determinants of bank lending in Cameroon using time series data collected mainly from the World Bank database for the period spanning from 1979 to 2019. After exploring related theoretical and empirical literature, Engle and Granger two steps cointegration testing procedure was employed together with the necessary pretesting (unit root tests) and post estimation testing. Results of stationarity tests indicate that variable were a mixture of stationary and first difference. The lagged residual term possess unit root at level indicating that the variables are actually cointegarted and that ECM is relevant. The estimated cointegration regression model and the corresponding ECM were globally significant at one percent and the models were equally adequate with explanatory power of over 73 and 52 percent respectively. The results of the two models revealed that the effect of economic growth on bank lending was positive and highly significant, the effect of interest rate is negative and equally significant, then the effect of Gross Investment rate was also positive but not very significant in the short run. Based on the major findings, bank lending can be encouraged by stimulating the level of economic activities, by reducing interest rate on loans and by encouraging more investment projects.

Fiscal and monetary policy regimes: New evidence from India

The paper examines how fiscal and monetary policy coordination in India stabilizes macroeconomic fundamentals. We consider two coordinating fiscal and monetary policy regimes, the “Indian Fiscal” (IF) and M regime and then examine the transmission of public expenditure (PE) shock across these regimes. Monetary policy in the IFregime supports fiscal policy in debt stabilization by reducing interest rates. The M regime fiscal policy supports monetary policy in curbing inflation through fiscal consolidation drives. The IF regime is more conducive to the Indian economy as PE stimulus accelerates economic activity without causing high inflationary and high debt scenarios. In contrast, the M regime has a crowding out effect on PE stimulus while worsening the government's fiscal space. The findings indicate that in the Indian case, the monetary authority should maintain its accommodative stance on PE stimulus.

THE MONETARY POLICY AND ITS IMPACT ON CONSUMPTION AND TRADE IN ROMANIA

The methods that a country's central bank uses to control the total amount of money in circulation and affect trade, consumption, and economic growth are collectively referred to as monetary policy. A monetary expansionary policy entails a reduction in interest rates. As borrowing costs decrease, customers are encouraged to borrow more money and spend more, which boosts consumer spending and promotes economic growth. On the other hand, when interest rates rise during contractionary monetary policy, saving becomes more appealing while borrowing becomes more expensive. As a result, consumers may cut down on spending, which has an impact on aggregate consumption. Businesses are encouraged to invest by lower interest rates brought on by expansionary policies. They may borrow money more cheaply, which boosts imports, company expansion, and capital expenditures. Trade can increase if expansionary measures cause the home currency to weaken and become more appealing to export. In contrast, exports can be hampered by a rising currency. In conclusion, trade dynamics, corporate investment, and consumption patterns should be all greatly impacted by monetary policy measures. In order to find out some evidence about the monetary policy and its impact on consumption and trade in Romania, the paper uses statistical information from the National Bank of Romania between 2003 and 2023 for the monetary policy interest rate. This is going to be assessed base on its impact upon: Final consumption expenditure of general government; Final consumption expenditure of households; Gross capital formation; Exports of goods and services; Imports of goods and services; all of this taken from Eurostat. The results should point out if an increase or decrease of monetary policy interest rate is going to produce an impact upon consumption and trade, or the contrary is going to take place.

EVALUATION OF THE EFFECT OF EXPANSIONARY MONETARY POLICIY IMPLEMENTED DURING COVID-19 ON THE TÜRKİYE, EU AND US ECONOMIES

In this article, the effect of expansionary monetary policy implemented during the covid-19 on the Türkiye, the EU and the USA economies has been evaluated. The beginning of the pandemic covers the period between January 2020 and January 2024. The effects of the monthly percentage change in M3 money supply on unemployment, real economic growth and inflation are presented comparatively with graphs. As a result, while Türkiye was the country where the increase in M3 money supply increased inflation the most, the country where unemployment increased most rapidly at the initial phase of the pandemic was the USA. However, over time, the Fed managed to reduce unemployment to historical low levels with the measures it took. The consequence of the contractionary monetary policy after the pandemic, inflation has been brought under control and the option of reducing interest rates has recently come to the fore. Rising inflation in the EU was also taken under control, but unemployment still remained high

THE IMPACT OF MICRO FINANCE SERVICES ON WOMEN'S ECONOMIC EMPOWERMENT; EVIDENCE FROM KURUNEGALA DISTRICT IN SRI LANKA

Women's economic empowerment has become one of the most pressing concerns in the world as empowering women economically, can make a significant contribution to the expansion of the economy and their immediate families to maintain a sustainable way of life. The concept of microfinance has developed as a tool to obtain both financial and non-financial support for poor people's self-empowerment. Women who come from low-income families are given the ability to make a valuable contribution to the economy through the use of microfinance. In the Sri Lankan context, female labor force participation is comparatively at a lower level, and thus more women are economically inactive. Therefore, microfinance services are vital to low-income women in both rural and urban areas. Due to the vitality of this aspect, this research aims to examine the impact of microcredit, micro saving, financial training, and advisory services on women's economic empowerment in Sri Lanka. The population used in this research is microfinance women beneficiaries in Kurunegala District, and the researcher selected 380 microfinance women beneficiaries as the sample size of this study using random sampling technique. Data collection was conducted using structured, self-administered, web-based questionnaires and personal interviews, where the data set was analyzed using multiple linear regression analysis. The results of this research show that microcredit, micro savings, financial training, and advisory services significantly and positively impact women's economic empowerment. Accordingly, the researcher recommends microfinance institutions to increase the granting of microcredit facilities to poor women in the Kurunagala district, as these institutions have given less loan amounts than applied. Also, it is recommended to reduce interest rates and increase payback periods, as high interest rates are an additional burden on the customers. Furthermore, the government should pay more attention to these low-income women and conduct some programs to improve their knowledge and careers. Meanwhile, microfinance institutions should improve their management capacity and strive to reach out to women in need to enhance their economic empowerment and improve their contribution to the workforce and economy.

Interest Rate and Loan Default in Financial Institutions

The study was carried out to examine the relationship between interest rate and loan default in Pride Microfinance in Ishaka-bushenyi municipality, Bushenyi District, a case of Pride Microfinance Ishaka branch. This study was guided by a mixed research design. Questionnaires and interviews were used as data collection instruments. A purposive sampling technique was used to sample 50 respondents. It was found out that there are high costs of getting business loans by borrowers because of a lack of collateral. The high interest rate level on the borrowers leads to loan default among business borrowers because the profit margin is very low. It was also found out that the possible solutions to reduce loan default were proper loan assessment, motivating good loan clients, reducing interest rates and proper loan monitoring. Also, financial institutions should tighten and follow the possible solutions to minimize high interest rates to favour business borrowers for greater productivity. It was recommended that though the availability and accessibility of loanable funds is very important, the Institution could consider lowering interest rates to enhance loan on time loan repayment. The Institutions could consider the establishment of micro insurance to protect customers. There should be increased monitoring of loan to ensure that funds are not diverted, loans are used for the intended purpose and repayment made on time. The study concluded that financial Institutions have to reduce the costs of getting business loans and interest rate which would encourage borrowers to obtain business loans to effectively operate their business activities and as well as repaying the loans

The association between COVID-19 related income loss and diet quality: The mediating role of distress

The COVID-19 lockdowns saw many individuals lose income, experience distress and increase intake of foods that would typically be considered less ‘healthy’ (more processed and less fresh produce). Establishing whether there are direct and indirect links between these variables would be of benefit in preparing for similar future events but also has implications for the current global financial climate, where many are experiencing relative decreases in income. Adults in two locations (UK and Australia) (N = 917) completed online questionnaires to explore the impact of the first COVID-19 lockdown on their change in income, emotional wellbeing (depression, anxiety, stress, loneliness), resilience and diet quality. A structural equation model revealed that income loss was indirectly associated with diet quality via distress. As such, the greater the loss of income experienced, the more distress reported; distress was then directly associated with a less nutritious diet. This pattern of results existed when data from both countries were combined but also when they were modelled individually. Our findings indicate that where individuals experience a sudden reduction of income there are likely to be negative consequences for both mental and physical health. It is plausible that these findings would extend to other circumstances in which sudden loss of income may be experienced such as reductions in state social care, rising inflation and interest rates and sudden increases to the general cost of living.

Kebijakan Moneter Dalam Pemulihan Ekonomi Indonesia Pada Masa Pandemi Covid-19

Introduction/Main Objectives: The Covid-19 pandemic, including Indonesia, has disrupted the world economy. In the world, Covid-19 has eroded the economy by USD 8.8 trillion or 9.7%. Bank Indonesia, the central bank that regulates monetary policy, has restored the economic problems that have occurred by collaborating with the government. This study aims to determine monetary policy in economic recovery during the Covid-19 pandemic. Research Methods: The method used in this research is qualitative with literature study techniques sourced from articles, books, journals, or other related sources. Finding/Results: The results of this study indicate that the monetary policies implemented by Bank Indonesia include accommodative macroprudential policies, rupiah exchange rate stability policies, SBN purchase policies from the secondary market, policy interest rate reductions (BI7DRR), and social assistance distribution policies (bansos) with the government. Conclusion: From several policies, it can be concluded that Bank Indonesia is serious in dealing with economic problems during the Covid-19 pandemic. So it is hoped that with the right Monetary Policy, the economy in Indonesia will improve.

The Impacts of Accounting Information on the Cost of Capital of a Company

The cost of capital is heavily influenced by a company's accounting information. The cost of capital is the rate of return that investors want in exchange for putting their money into a business. Accounting information has an indirect effect on society via things like disclosure and openness. Companies get more trust from investors and the public when they make their financial data easily accessible and easy to understand. Since investors will have a clearer picture of the company's financial performance, they may be more willing to lend money at a reduced interest rate as a result of this greater openness. Another abstract influence is the appraisal of financial success. Investors and lenders use financial statements and other forms of accounting information to assess a company's profitability and financial health. Investors may get a sense of a company's profitability, asset management, and cash flow capabilities by looking at the company's income statement, balance sheet, and cash flow statement. A reduced cost of capital may be possible if financial performance indicators provide a positive picture of the company's financial health. Risk may be better evaluated with the use of accounting data. Financial data is used by investors in assessing the safety of a firm. Investors may get a sense of the company's financial health, leverage, and liquidity by examining financial statements and ratios. A reduced cost of capital is more likely to be offered by investors to a firm that has a good financial position and a low risk profile. In addition to improving openness and easing the evaluation of financial performance and risk, accounting information also affects the cost of capital. The cost of capital might be reduced if investors have more faith in a company because of the transparency it displays in its financial dealings. KEYWORDS: Accounting information, Cost of capital, Transparency and disclosure, Reliable financial information, Investor confidence, Lower risks, financial performance assessment

Identifying Credit Accessibility Mechanisms for Conservation Agriculture Farmers in Cambodia

As the expected cost of conservation agriculture (CA) inputs becomes an issue for farmers, financial institutions (FIs) play an essential role in promoting CA, a set of agricultural management practices with multiple positive effects. This research aimed to determine influencing factors, to rank challenges, and identify mechanisms for farmers to access agricultural credit for adoption of CA management practices in Cambodia. It was administered by conducting a survey of 242 randomly selected households for face-to-face interviews and conducting key informant interviews from purposive samples of 28 participants in Battambang and Preah Vihear provinces. The results indicated that influencing factors, including the family, adult labor and total farm size, had a positive relationship with farmers’ accessibility to agricultural credit, whereas age was negative. However, education year, farm size for main crops, on-farm income and farm experience were not significantly associated. High interest rates were the significant first-order challenge ranked, followed by document process complication, limited agricultural credit information, limited collateral security and a few other challenges. Support and improved process mechanisms to enhance credit accessibility are required to engage with multiple stakeholders, including farmers, FIs, non-government organizations (NGOs) and government officers. There has been a reduction in agricultural credit interest rates and incentives for importing CA inputs by the government, while provision of information support for agribusiness plans by NGOs which have implemented development project activities were considered as the main support mechanism. An improved process mechanism at the farmers’ level needs to include access to credit with low interest rates and a straightforward documentation process, whereas the FI level requires a business plan for lending decisions. It is evident that high lending rates hinder access to agricultural credit and the improvement of support and improved process mechanisms are necessary to better promote CA practices among farmers in Cambodia.

Monetary policy and risk of commercial banks in Vietnam

This study investigates the bank risk-taking channel of monetary policy transmission by comprehensively analyzing multiple bank risk measurements amid monetary policy shocks in Vietnam. Using banking data for 2008–2021, a dynamic panel model is estimated to examine the risk exposure of 30 Vietnamese commercial banks. The paper employs the annual M2 money supply growth as a monetary policy variable, besides two policy interest rates established by the central bank. We find that an expansion of monetary policy benefits the quality of loan portfolios; however, reduced interest rates or an extended money supply increase insolvency risk. We also document that heightened economic growth corresponds to a reduced likelihood of credit and insolvency risks, while a surge in the inflation rate leads to an escalation in insolvency risk, manifested by a decline in the Z-score index. Overall, the findings on different risk dimensions in this paper are expected to draw a comprehensive picture of banks’ risk appetite and behavior in response to monetary changes.

Blockchain-Based Peer-to-Peer Decentralised Lending and Borrowing System

Abstract: A decentralized peer-to-peer lending and borrowing system represents a transformative paradigm shift in the traditional financial landscape. This abstract explores the concept, benefits, and challenges of such a system, which leverages blockchain technology and smart contracts to facilitate direct, trustless interactions between lenders and borrowers. In this innovative system, intermediaries like banks are circumvented, enabling individuals to participate directly in lending and borrowing activities. Blockchain's decentralized ledger ensures transparency, security, and immutability of transaction records, while smart contracts automate the execution of loan agreements, thereby reducing the risk of default and eliminating the need for intermediaries. Key advantages of this decentralized system include increased financial inclusivity, reduced interest rates, and a broader pool of lenders and borrowers. It fosters a more efficient allocation of capital by matching lenders and borrowers based on predetermined criteria, thereby reducing information asymmetry.

Climate risk and the natural interest rate: An E-DSGE perspective

We examine the effect of climate-induced temporary extreme weather events on the natural real interest rate by incorporating environmental aspects into a Keynesian growth model. We find that environmental damage accentuates the reduction in the natural real interest rate caused by climate-induced temporary supply disruptions, and this effect is even more pronounced when the estimate of the current stock of carbon dioxide in the atmosphere doubles.

Bank competition and household informal credit

This study examines the relationship between bank competition and informal household credit. Using data from four rounds of the China Household Finance Survey (CHFS), we find that increased competition among banks significantly reduces households' use of informal credit. To establish causality, we create a quasi-natural experiment based on the relaxation policy for city commercial bank branch expansion and obtain consistent results. We further uncover two mechanisms through which bank competition affects informal credit use: reducing interest rates on formal loans and improving financial literacy among households. Moreover, the heterogeneous analysis shows that higher-income and asset-rich households, as well as those residing in urban areas, are more negatively affected by bank competition in terms of informal credit access, whereas its influence on informal credit in agricultural production and medical expenses for households is not statistically significant. Overall, the results imply that fostering moderate competition in the banking industry can diminish the reliance on informal credit markets and offer a more comprehensive understanding of the relationship between the banking sector and household credit.

Emerging Trends in Worker-Cooperatives in a Changing World of Work: Implication for Community Development in Nigeria

Worker-cooperatives are emerging as organizational structures responding to the trends within the world of work, ranging from technological, economical to social trends. They have a specific democratic governance structure of management and members being the workers and they are also in charge of decisions making in the enterprise. As part of the trends in a changing world of work, worker-cooperatives use different spectrums of technologies for local and international work performance. They buy out or take over business organizations that are failing as a result of the financial and economic crisis and transform the business organizations into productive enterprises. They also generate employment for members and non-members, provide financial assistance to members and non-members at a reduced interest rate and help to train community members to be proficient in different fields of endeavour. Obviously, in the Nigerian society today, worker-cooperatives are agents of bringing development in urban settlements and rural communities.