Role Of Interest Rates Research Articles

The “effect modifier” of US interest rate in the economic policy uncertainties and economic conditions of fifty (50) US states: A semi-parametric smooth varying-coefficient approach

In this study, we investigate the relationship between economic policy uncertainty [EPU] and the economic conditions of the 50 US states, as well as the role of interest rates. We use a semi-parametric smooth varying coefficient model (SVCM) to examine how interest rate affects the nexus of EPU-economic conditions. Our findings suggest a negative relationship between EPU and economic conditions and that when the interest rate is around 3 %, the negative impact of EPU on economic conditions decreases in more than 60 % of US states. Furthermore, we find that the rate of change in the interest rate between 2 % and 3 % helps mitigate the negative effects of EPU and improves economic conditions in several states. Our results remain consistent across different interest rate periods, regardless of whether the uncertainty is of internal or external origin.

Review on Monetary Policy after the Great Recession: The role of interest rates, by Arkadiusz Sieron, London: Routledge 2021

In his worth-reading book, Monetary Policy after the Great Recession: the role of interest rates, Arkadiusz Sieron looks at the limits of monetary policy and, in particular, the effectiveness of unconventional monetary policy. Sieron takes a close look at the unconventional monetary policy measures used after the Great Recession. He begins his book with an analysis of the so-called transmission channels of monetary policy. In the mainstream, there are several theories of how monetary policy affects or transmits to real variables such as employment and economic growth.

Crowding-in or crowding-out? The linkage between private investment and public debt of India using symmetric and asymmetric cointegration methodology

The study aims to examine the asymmetric effect of public debt on private Investment in India. For examining the asymmetric effect of public debt on private Investment in India, this study used the NARDL approach. The study used annual time series data for the period of 1980 to 2019. Results from the symmetric co-integration model demonstrate that there is a long-term relationship between private investment and measures of public debt, with the exception of external debt and private investment, which exhibit an asymmetric reaction to changes in long-term public debt. The long-run asymmetries show that positive changes in debt do not crowd out private investment while negative changes in debt crowd in private investment. The present study on asymmetric public debt-investment link may have important policy implications. The long-run asymmetries indicates that negative shocks in debt have more crowding effects in India which shows that reduction in borrowings may lead to growth in private investment in long-run. The present study is different from the previous studies and is contributing to the existing literature in two ways. The first study focused on the role of interest rates in affecting private investment in India and looked at this hypothesis in Nonlinear ARDL co-integration relationship.

The Recent Surge in Money Growth: What Would Milton Friedman Say?

The M2 money supply has grown by almost 40% since 2019. This number by itself raises the strong possibility that we have entered a new and remarkable era in United States monetary history. But what would Milton Friedman say?Friedman's most famous work, his Monetary History of the United States, co‐authored with Anna Schwartz, provides a narrative account of events that links volatility in the money supply to economic instability, particularly during the Great Depression of the 1930s. And many of his subsequent articles focused on the role played by excessive money growth in generating the inflationary, boom‐bust cycles of the 1970s. An examination of these writings leaves little doubt that Friedman would be quite concerned about the recent surge in M2.Toward the end of his career, however, Friedman saw that the tight statistical links between money, output, and inflation that formed the basis for his lifetime's work had started to weaken. These same shifting correlations led other monetary economists and Federal Reserve policymakers to downplay the importance of changes in the money supply and to emphasize instead the role of interest rates in transmitting the effects of monetary policy to the broader economy.This paper takes a fresh look at the data, extended through the present, with the help of insights gleaned from Friedman's writings. It finds that when the sharp reduction in the velocity of money is accounted for, the historical relationships between money, output, and inflation that Friedman originally discovered reappear, even in the most recent data. These findings confirm what surely would be Friedman's concern: that unless the Federal Reserve moves decisively to wind down and reverse its large‐scale asset purchases and raise its target for the federal funds rate, higher inflation will persist.

Comparing the Effect of Intangible Assets and Macroeconomic Parameters on the Stock Prices in Firms Listed on the Stock Exchange of Iran, Saudi Arabia and Iraq

Comparing the Effect of Intangible Assets and Macroeconomic Parameters on the Stock Prices in Firms Listed on the Stock Exchange of Iran, Saudi Arabia and Iraq

Quantifying the Role of Interest Rates, the Dollar and COVID in Oil Prices

Quantifying the Role of Interest Rates, the Dollar and COVID in Oil Prices

Non-linear cointegration between oil and stock prices: The role of interest rates

The Zero Lower Bound (ZLB) has been suggested as an explanation as to why oil and stock prices have become highly correlated post 2008. Our paper contributes to the literature on this topic by testing (i) whether there is a long-run relationship between oil prices and stock prices (measured by the MSCI World Index) that is non-linear depending on the interest rate levels and, if this is the case, (ii) whether the co-movement between them is stronger when interest rates are very low. To do so, we apply a cointegrating smooth transition regression approach using a global shadow rate as the transition variable to take into account the possible effects of unconventional monetary policy measures on the oil-stock price linkage. We find evidence in favor of the two hypotheses tested. These results have important implications for portfolio managers and investors, since the benefits of portfolio diversification by investing in oil would be lower in a ZLB context. In addition, from a policymakers’ perspective, the results could be revealing that, in this context, central banks could exert a greater influence than in “normal times” not only on equity prices, but also on global oil prices.

Book Review: Monetary Policy after the Great Recession: The Role of Interest Rates

Arkadiusz Sieron, of the University of Wroclaw, embarks on an ambitious task: to investigate the failure of expansionary monetary policy to address the challenges of the 2008–09 Great Recession. The methodological shortcomings in Sieron’s otherwise rich book stem largely from his _eclectic ecumenism._ The wish to speak to, and please, all economists results in an inconsistent analytical framework that eventually blurs the essential distinction between natural market phenomena and government intervention.

Empirical analysis of impact of macroeconomic indicators on Profitability of Islamic Banking Industry in Pakistan

The Islamic banking has been found showing a great performance around the globe, which make it an important to understand the factors affecting the Islamic banking. This paper is aimed at studying the role of Interest Rate as economic indicator, Total assets and credit risk as bank specifics, on maintaining sustainable profitability measures, ROE and ROA of all full fledge Islamic banks in Pakistan during the period of 2006-2018. The data collection includes all full fledge Islamic banks of Pakistan i.e., Al Baraka Bank (Pakistan) Ltd, Bank Islami Pakistan Ltd (BIPL), Dubai Islamic Bank Pakistan Limited (DIB) and Meezan Bank Limited. Furthermore, there are two measures of profitability i.e. Return on equity (ROE) & Return on assets (ROA). The regression analysis in the results show that there is a significant role of bank specific variables (total assets, and credit risk) and macroeconomic indicator (interest rate) on ROE, moreover, the role of Credit Risk and Interest Rate is also found significant in influencing the ROA. Keywords: Profitability, Interest Rate, Credit Risk, ROE and ROA DOI : 10.7176/EJBM/11-33-14 Publication date: November 30 th 2019

A Divisia User Cost Interpretation of the Yield Spread Recession Prediction

A re-evaluation of the role of interest rates is necessary in the wake of the Great Recession. This paper will re-evaluate the interpretation and empirical use of the yield spread as a predictor of recessions, focusing on the simplified methodology in a New York Federal Reserve Bank paper by Estrella and Trubin. Using the user cost difference formula to calculate bond prices following the methodology in the Divisia literature begun by William A. Barnett and a unique data set from the Center for Financial Stability, the yield spread is shown to be a form of the user cost difference, and use of the user cost is shown to marginally improve the predictive abilities of the yield spread. Further research into this view of the link of interest rates and economic activity is proposed.

Detecting periods of exuberance: A look at the role of aggregation with an application to house prices

The recently developed SADF and GSADF unit root tests of Phillips and Yu (2011) and Phillips et al. (2015a,b) have become popular in the literature for detecting exuberance in asset prices. In this paper, we examine through simulation experiments the effect of cross-sectional aggregation on the power properties of these tests. The simulation design considered is based on simulated data and actual housing data for both U.S. metropolitan areas and international housing markets and thus allows us to draw conclusions for different levels of aggregation. Our findings suggest that aggregation lowers the power of both the SADF and GSADF tests. The effect, however, is much larger for the SADF test. We also provide evidence that tests based on panel data techniques, namely the panel GSADF test recently proposed by Pavlidis et al. (2016), can perform substantially better than univariate tests applied to aggregated series. Furthermore, we also illustrate the date-stamping procedure under the univariate/panel GSADF procedure uncovering novel evidence on the role of interest rates and policy uncertainty as factors explaining episodes of widespread mildly explosive dynamics in housing markets.

Local and international dimensions of credit provision by commercial banks in Kenya

Although considerable research has focused on the determinants of credit to the private sector, the issue still remains controversial, particularly with respect to the role of foreign banks in emerging markets. This study sought to understand the factors that affect lending of commercial bank loans both in form of foreign and local loans. It used panel data methods on quarterly bank-specific data covering the period from 2000 to 2013. In general, the results reveal that the ownership structure, housing variable and the size of the bank are the main determinants of aggregate commercial bank lending. This conclusion is maintained even when the determinants of foreign loans and local loans are specifically examined separately. However, the role of the liquidity measure is in not consistent in the different specifications while the role of interest rates is largely in line with expectation in most of the specifications. Implicitly, the results seem to suggest a need for mergers of small banks, policy focus on incentives for more local bank ownership and continued efforts on minimization of interest rate spread, which not only promote mortgage financing and home ownership, but also overall credit growth.

Role & Impact of Interest Rate in Jordan’ Economy from Points of View of Banking Managers

<p><strong>The research aimed at investigating the role, impact and determinants of interest rate in Jordanian economy from view points of banking managers in Jordan. The methodology is descriptive and analytical using mean, standard deviation, t-test and percentages as statistical tools. The study concluded that the role of interest rate in Jordanian monetary policy is restricted by two factors: pegging JD with US$ which limits the effective role of interest rate in Jordanian monetary policy and the dual banking system of traditional and Islamic banks where Islamic banks do not deal with Interest rate. Raising interest rate in Jordan caused higher cost of credit for companies, less competitiveness of exports, less liquidity in the economy, higher profit margin for banks, higher exchange rate of JD and higher inflation. Nevertheless, lowering interest rate in Jordan caused lower cost of borrowing, higher liquidity, better competitiveness of exports and more credit facilities by banks but inflation was much lower. </strong><strong>Moreover, the study concluded the determinants of interest rate in Jordan are money supply, demand for money, inflation and economic conditions. </strong><strong>In order to have an effective role for interest rate in monetary policy, the researcher recommends pegging JD to a basket of currencies</strong>. </p>

Interest Rate, Corporate Membership and Loan Repayment by Borrowers from Micro-Financial Institutions in Nakuru County

The purpose of this study was to determine the relationship between interest rate, corporate membership and loan repayment in MFIs in Nakuru County. The study was guided by two objectives; to investigate the role of interest rate in loan repayment in MFIs in Nakuru County and to analyze the role of corporate membership in loan repayment in MFIs in Nakuru County. The study adopted correlation design and was guided by multiple regression models. The study collected data through structured questionnaires that had adequate research items on every research indicator. Collected data was analyzed using STATA and results were presented using tables. The findings of the study revealed that interest rate is not a determinant of loan repayment in Micro Financial Institutions in Nakuru County and it was concluded that interest rate charged on a loan does not impact on repayment. Similarly, it was evident that corporate membership is not significant determinant of loan Repayment in micro financial institutions in Nakuru County. The study recommends that institutions should establish a close relationship between the lenders and the borrower through monitoring, business advice and regular meetings. The institution can also develop a reward system to those borrowers who repay their loans on time through discounts on subsequent loans and savings. Further studies should be conducted to examine if the following determinants are associated with loan repayment in MFIs period of membership, security given, utmost good faith, consistency of payment during previous loan and social problems.

The Cambridge capital controversies: contributions from the complex plane

ABSTRACTThis article takes a fresh look at reswitching. When two production techniques are compared, reswitching occurs when one technique is more viable than the other at a high interest rate, switches to being less viable at a lower rate, and reswitches to being more viable again at even lower rates. For some, reswitching undermines the foundations of neoclassical economics because it belies the idea of a monotonic relationship between relative capital values and factor price. The reswitching equation is an nth degree polynomial having n roots, implying the existence of n interest rates. Conventional analysis uses one interest rate but ignores the others. We argue that the others should not be ignored because all rates are determined simultaneously, and when one rate shifts, all rates shift. We demonstrate that the Samuelson reswitching model possesses a ‘dual’ expression containing every interest rate, the rates being compressed into a composite, interest-rate variable, thereby establishing a role for interest rates previously thought lacking in use and meaning. The relationship between this composite interest rate and capital value does not exhibit reswitching. The notion of a composite interest rate has implications for economics beyond reswitching.

Exchange Rate Effects of Portfolio Shifts?

Using the Branson model as an example, this paper seeks to clarify the role of interest rate and exchange rate changes in asset market models. Focusing on short-term adjustments, it is shown that portfolio shifts mainly affect relative interest rates in different countries. Only to the extent that portfolio shifts lead to changes in the money demand or money supply, are exchange rates affected as well. The announcement of German monetary union in 1990 is used as an example to illustrate the relative significance of interest rate changes as shock absorbers.

The Interest Rate Channel of Monetary Transmission: The Indian Experience

This paper looks into the role of interest rate in the monetary transmission mechanism in India. It analyses the effect of the changes in the policy rate on the different segments of the financial market in India from the onset of Liquidity Adjustment Facility (LAF), i.e, July 2000 onwards to March 2014. A VAR model comprising of interest rate, output, price and exchange rate is estimated for the same period, to study the effect of changes in the policy rate on the various macroeconomic variables. The policy rate is proxied as the monthly weighted average overnight call money rate i.e., CMR as this is the operating target of the RBI. Both the exercises show that interest rate channel has gained in importance for the Indian economy after the deregulation of interest rates and adoption of the new monetary operating framework.

Nonlinear Effects of Financial Sector Development on Iran Economic Growth: With an Emphasis on the Role of Interest Rate

<p class="ber"><a name="OLE_LINK6"></a><a name="OLE_LINK5"></a><span lang="EN-GB">In this paper, a threshold error correction approach is used to analyze whether in various interest rate regimes, the effectivity of financial development indicators on economic growth rate is different or not</span><span lang="EN-GB">. Over the period 1973 – 2007<span>, we show that in high interest rate regime, stock index’s growth rate and growth rate of banking facilities indicator (as financial development indicators), have positive effect on Iran economic growth.</span></span><span lang="EN-GB">Nevertheless, in low interest rate regime, financial development reduces Iran economic growth. Basically this negative impact can be attributed to negative real interest rate due to high inflation. Furthermore we question whether financial index growth will equally affect economic growth before and after crossing a threshold level. Our results suggest that when threshold variable is considered as banking facilities index, there is no linear relationship between the mentioned index growth and economic growth. However, when the stock index is considered as a threshold variable, passing the threshold level will promote economic growth. </span></p>

Management of financial markets and the assessment of their condition: a synergistic approach

The article considers the issues of management of the financial markets from the perspective of the synergetic approach, proposed criteria for assessing the effectiveness of management decisions. Special attention is paid to the role of interest rates in the state regulation of the financial system of the state.

Interest Rates 6: Role of Interest Rates

This is the sixth in a series of seven papers on interest rates and it covers the various roles of interest rates: primary tool of monetary policy, bridge between present and future consumption, advancing consumption / investment with debt, interest rates’ inverse relationship with asset prices and the wealth effect, the role of interest rates in derivative instrument pricing, and interest rates’ role in foreign sector issues. The seven papers cover: (1) what are interest rates?; (2) relationship of interest rates; (3) composition of interest rates; (4) interest rate discovery; (5) bank liquidity & interest rate discovery; (6) role of interest rates; (7) an optimal rate of interest: the natural rate.