Short-term Interest Research Articles

FACTORS INFLUENCING NON-LIFE INSURANCE DEMAND: CASE OF LITHUANIA

This paper studies factors affecting non-life insurance demand in Lithuania. The study identified variables that are important in analyzing the demand for non-life insurance and were applied in estimating multivariate VAR, Classical Granger, and Toda-Yamamoto causalities. Lithuania’s case showed three significant causal relationships: positive - between non-life insurance demand and inflation and loss probability, negative - between density and short-term interest rate. Loss probability and short-term interest rate have been shown to be significant across all models. Inflation was deemed to be the effect of shift in demand rather than the cause.

Repo rates as reference interest rates: testing the expectations hypothesis of the term structure of interest rates

The subject of this paper is the consideration of the role of the repo market and the quality of repo rates in the formation of reference interest rates that would be used to assess the value of financial instruments and derivatives. Unsecured money markets carry a certain level of risk, thus, the question arises whether the existing reference interest rates should be replaced by repo rates or other interest rates on secured loans. Reference interest rates on the money market play an important role in a country's monetary policy. Through operations on the short-term money market, Central Banks try to influence interest rates with long maturities. One of the most well-known theories that considers the question of the relationship between short-term and long-term interest rates is the expectations hypothesis. In this paper, expectations hypothesis is tested on the example of daily data of overnight interest rates related to secured interbank loans. Two samples were used, and term premiums were estimated for both short-term (up to one year using LIBOR interest rates) and long-term maturities (from two to ten years using ICE swap interest rates). The hypothesis is tested using two econometric tests proposed by Campbell and Shiller (1991). The tests were also applied to the overnight interest rates of interbank loans that are not secured, in order to get a better comparative picture. The results show that collateralized interest rates are good indicators of benchmark interest rates, and in some cases even more accurate predictors of long-term interest rates.

The dynamic relationship between economic crisis, macroeconomic variables and stock prices in Sri Lanka

PurposeThis study aims to examine the short- and long-term equilibrium relationship between All share price index (ASPI), macroeconomic variables and the economic crisis in Sri Lanka.Design/methodology/approachMonthly time series data for inflation (CPI), industrial production (IP), an exchange rate (EX), an interest rate (TB), short-term interest rate (CD) and economic crisis were used from 2010 to 2021. The ADF test, the bound testing approach, the CUSUM test and the CUSUMQ test were used in this study.FindingsThe findings show a long-run stable relationship between stock price, macroeconomic variables and political crisis (i.e., CPI, IP, ER, TB, CD and economic crisis). The results of the Johansen cointegration test suggest that there is at least one cointegrating equation, indicating that there is a long-run equilibrium relationship between macroeconomic variables and stock prices in Sri Lanka.Research limitations/implicationsThe vector error correction estimates show that the coefficient of the error correction term is significant with a negative sign, indicating that a long-run dynamic relationship exists between macroeconomic variables and stock prices. In the short term, economic crisis has had a big effect on stock prices suggesting that Sri Lanka’s domestic financial markets are linked to the stability of the country.Originality/valueThis research establishes the links between stock returns, macroeconomic variables and economic crisis. So far, research has been unable to establish the empirical nature of such links. The authors believe that this paper fills that gap.

Fine-grained modeling of user interests for sequential recommendation

In recent years, the sequential recommendation method has attracted extensive attention owing to its practicability and high accuracy. Different from general recommendations, explicitly capturing short-term interests based on users' recent actions lies at the heart of a sequential recommender. Existing methods have either modeled successive items step by step without considering the many-to-one relationship or neglected the local-order information, considering the recent items as a set. This neither fully mines complex item transitions nor depicts the evolution of user interests. Therefore, we propose the gating coupled capsule network (GCC), a fine-grained analysis method to model individual-level, union-level, and local-order relationships of short-term user interests. Specifically, we designed a user-specific capsule module to capture high-level temporal interaction sequences, which model union-level patterns and perceive local-order relations. Moreover, we present a personalized gating module to focus on the pairwise relationships among items to capture the influence of individual-level information on short-term user interests. Extensive experiments under four real-world recommendation scenarios demonstrate that GCC outperforms the state-of-the-art methods on different ranking metrics.

Inflation expectations: Australian consumer survey data versus the bond market

This paper analyzes the relationship between interest rates, inflation expectations and inflation rates in Australia using the approach suggested by Toda and Yamamoto (1995) to test for Granger causality. The empirical evidence reported here suggests that uni-directional Granger causality is running from medium- and long-term government bond yields to short-term inflation expectations as measured by a survey among consumers. Moreover, there is bidirectional Granger causality among short-term interest rates and short-term inflation expectations among consumers. Additionally, interest rates and the sentiment data measuring inflation expectations can help to predict inflation rates. These findings are supportive for the Fisher effect and also seem to indicate that the bond market is quite efficient predicting inflation rates. Furthermore, some problems of more traditional tests of the Fisher hypothesis are discussed. In this context the role of financial deregulation in Australia is examined. Thus, the Lucas critique seems to be of some relevance testing the Fisher effect (see Lucas, 1976).

The fallacies of central bank independence

The fallacies of central bank independence

Independent policy, dependent outcomes: A game of cross-country dominoes across European yield curves

This study investigates the dynamic transmission mechanism between 2Y, 5Y and 10Y interest rate swaps (IRS) for six European currencies (CHF, DKK, EUR, GBP, NOK and SEK) from August 6, 1999 to March 4, 2021 applying the time-varying parameter vector autoregressive connectedness approach in the spirit of Antonakakis et al. (2020). Furthermore, we propose a novel conditional connectedness approach that extends the original framework (Diebold and Yilmaz, 2012, 2014) by analysing dynamic connectedness measures in more depth and improving the interpretability of information concerning the cross-maturity/cross-currency propagation mechanism. We document that EUR and DKK have been the most prominent transmitters of shocks in the network. We also find that the 10Y IRS has increasingly assumed a net-transmitting role at the expense of the 2Y IRS—in line with a shift towards unconventional monetary policy and quantitative easing. From a policy-making perspective, this implies means that the role of the domestic short-term interest rate has become significantly less relevant for the monetary transmission mechanism at the expense of the foreign long-term interest rate.

Toward Sequential Recommendation Model for Long-Term Interest Memory and Nearest Neighbor Influence

Sequential recommendation can make predictions by fitting users’ changing interests based on the users’ continuous historical behavior sequences. Currently, many existing sequential recommendation methods put more emphasis upon users’ recent preference (i.e., short-term interests), but simplify or even ignore the influence of users’ long-term interests, resulting in important interest features of users not being effectively mined. Moreover, users’ real intentions may not be fully captured by only focusing on their behavior histories, because users’ interests are diverse and dynamic. To solve the above problems, we propose a novel sequential recommendation model for long-term interest memory and nearest neighbor influence. Firstly, item embeddings based on item similarity and dependency are constructed to alleviate the problem of data sparsity in users’ recent interest history. Secondly, in order to effectively capture long-term interests, the long sequence is divided into multiple nonoverlapping subsequences. For these subsequences, the graph attention network with node importance factor is designed to fully extract the main interests of subsequences, and LSTM is introduced to learn the dynamic changes of interest among subsequences. Long-term interests of users are modeled through complex structure within subsequences and sequential dependencies among subsequences. Finally, the user’s neighbor representation is introduced, and a gating module is designed to integrate the user’s neighbor information and self-interests. The influence of users’ short-term and long-term interests on prediction is dynamically controlled by considering nearby features in the gating network. The experimental results on two public datasets show that the proposed sequential recommendation model can outperform the baseline methods in hit rate (HR@K) and normalized discounted cumulative gain (NDCG@K).

Financialized Growth and the Structural Power of Finance: Turkey's Debt-Led Growth Regime and Policy Response after the Crisis

This article analyzes the Turkish central bank's “managed uncertainty” policy after the global financial crisis. During 2010–14, the central bank intentionally generated uncertainty around short-term interest rates, using the level of predictability faced by financiers as a tool to buffer the domestic economy from volatile capital flows. How did the central bank implement this unconventional policy? Building on interview data and public texts, the article argues that the surge in capital inflows after the crisis sourced a debt-led, financialized economic growth model and deepened Turkey's reliance on external financing. The central bank could diverge from the financial sector's policy preferences despite Turkey's increased foreign capital dependence because the availability of low-cost, ample, private funding opportunities temporarily expanded policymakers’ room to maneuver. However, operating vis-à-vis an unsustainable growth regime, the central bank had to revert to orthodoxy in 2014 due to declining investor confidence and capital flight. This article contributes to the literature on the structural power of finance by demonstrating how finance derives its structural power from funding financialized growth, not productive investments. It also shows that financial structural power varies based on the source and cost of external financing beyond the degree of foreign capital dependence.

Temporal Computing Resource Allocation Scheme With End Device Assistance

With the development of the Industrial Internet of Things (IIoT) and edge computing technology, edge servers have been used to allocate computing resources to IIoT devices for alleviating the huge computing needs of IIoT applications. Aiming at the problems of unbalanced distribution and inefficient use of computing resources during computing resource allocation, we propose a temporal computing resource allocation scheme with end device assistance. First, by establishing the temporal interest degree which uses the long-term interest accumulation and short-term interest change, IIoT devices are divided into different interest queues, the end devices with similarly temporal interest to the resource request device are sensed. Second, a social RippleNet based on a temporal knowledge graph is constructed. By analyzing the temporal characteristics and propagation process of social attributes in RippleNet, the temporally social similarity between the end devices and the resource request device is extracted, then the final computing resource allocation decision is generated by using the computing resource selection algorithm we proposed based on temporally social similarity. The simulation results show that the scheme we proposed can effectively improve the efficiency of computing resource allocation and balance the distribution of computing resources in the IIoT environment.

Time Consistency and Duration of Government Debt: A Model of Quantitative Easing

Abstract This article presents a model of quantitative easing (QE) at the zero lower bound (ZLB) on the short-term nominal interest rate. QE, which reduces the maturity of government debt, is effective at the ZLB because it generates expectations of future monetary expansion in a time-consistent equilibrium. Numerical experiments show that this effect can be substantial.

When Does Monetary Policy Sway House Prices? A Meta-Analysis

Several central banks have leaned against the wind in the housing market by increasing the policy rate preemptively to prevent a bubble. Yet the empirical literature provides mixed results on the impact of short-term interest rates on house prices: the estimated semi-elasticities range from \(-12\) to positive values. To assign a pattern to these differences, we collect 1,555 estimates from 37 individual studies that cover 45 countries and 72 years. We then relate the estimates to 39 characteristics of the financial system, business cycle, and estimation approach. Our main results are threefold. First, the mean reported estimate is exaggerated by publication bias, because insignificant results are underreported. Second, inclusion of controls correlated with policy rates (credit or money supply) decreases the estimated effects of policy rates on house prices. Third, the effects are stronger in countries with more developed mortgage markets and generally later in the cycle when the yield curve is flat and house prices enter an upward spiral.

Perception by Russian Social Media Users of Mass Protests During the Attempted Coup in Kazakhstan

The article presents the results of an applied political research on the representation of the 2022 Kazakh events in the Russian segment of social media. The context of the study stems from the significant intersection of the Russian and Kazakh segments of social media and the mutual influence of political processes. Under the political mobilization of the mass protests in Kazakhstan, which turned into an attempted coup, the activities of Russian counterelites intensified in various regions of Russia. Using a hybrid research strategy combined with cognitive mapping and social media analysis the authors managed to identify dynamic, structural and substantive characteristics of the information representation of the Kazakh events in the Russian segment of the Internet. The authors concluded that the scale of the Kazakh protests allowed to draw the short-term interest of the Russian audience, mainly from the regions bordering Kazakhstan. The use of economic triggers (rising prices, inefficient social policy, etc.) led to the involvement of the adult audience in the discussions around the Kazakh events, while a significant part of youth and young adults was excluded from information flows around the events. The study revealed that the Russian opposition attempted to use manipulative “contamination” technology in order to extrapolate the political and economic discontent in Kazakhstan to the situation in Russia. At the same time, the greatest resonance in the Russian segment of users was caused directly by the participation of the Collective Security Treaty Organization (CSTO) in the settlement, and not by the social and economic triggers that led to the events.

Americans' Attitudes Toward Federalism.

Contemporary and historical political debates often revolve around principles of federalism, in which governing authority is divided across levels of government. Despite the prominence of these debates, existing scholarship provides relatively limited evidence about the nature and structure of Americans’ preferences for decentralization. We develop a new survey-based measure to characterize attitudes toward subnational power and evaluate it with a national sample of more than 2000 American adults. We find that preferences for devolution vary considerably both across and within states, and reflect individuals’ ideological orientations and evaluations of government performance. Overall, our battery produces a reliable survey instrument for evaluating preferences for federalism and provides new evidence that attitudes toward institutional arrangements are structured less by short-term political interests than by core preferences for the distribution of state authority.Supplementary InformationThe online version contains supplementary material available at 10.1007/s11109-022-09820-3.

General Restrictions on Prices of Financial Derivatives Written on Underlying Diffusions

We apply probabilistic solutions of parabolic PDEs with terminal and boundary conditions to obtain restrictions on contingent claims written on one-dimensional diffusions. For term structure derivatives, we obtain monotonicity and convexity results with respect to the short-term interest rate. We apply them to bonds, calls on bonds, and puts on interest rates and we find a condition for the price of these derivatives to be convex in that rate. We find that yield curves corresponding to higher short-term rates lie uniformly above curves with lower rates. Regarding options on assets with local volatility, we obtain probabilistic representations, bounds, and asymptotic results for delta, rho, and theta. Similar results are obtained for Asian options.

A Tripolar Model of Gas Price Formation in Germany. Does the Shale Revolution in the US Matter?

Abstract Presented analysis of gas price formation mechanism in Germany was prompted by changes brought about by technological advancements and the liberalization and harmonization of natural gas markets in the European Union after the year 2000. Because the data used in the study is generated by nonstationary stochastic processes, the cointegrated vector autoregressive model was applied as the most appropriate. The analysis pointed out that the price of natural gas, oil and the USD/EUR exchange rate influence each other in the long run and thus should be modelled together. Gas price in Germany is driven by both fundamental and financial factors, and so it rises with economic expansion, oil price increases, and the depreciation of the USD. It also reacts to changes in short-term interest rates and the volume of gas production in the US, which confirms that the shale revolution in this country has been consequential for gas prices in Europe, like any other supply shock would have been.

Decomposing Long Bond Returns: A Decentralized Theory

Classic bond pricing centralizes bond valuation across all maturities by specifying the dynamics of the short-term interest rate. This article develops a decentralized theory that prices each bond based purely on the near-term behavior of the bond’s own yield. The theory levers the domain expertise of an investor on a particular bond and allows the investor to make pricing and investment analysis on the bond without the shackles of an ambitious centralizing mandate. The theory decomposes the short-term return on a bond with respect to the variation of its own yield. Imposing no dynamic arbitrage on the return decomposition leads to a simple pricing equation relating the bond yield to the market pricing and conditional mean and variance forecasts of the yield’s near-term change. The article illustrates the theory’s applications in decentralized investment of a single bond and in the construction and investment of decentralized butterfly bond portfolios.

The spillover effects of China's monetary policy shock: Evidence from B&R countries

This paper examines the international spillover effects of China's monetary policy shock on macro and financial variables in 26 countries along the Belt and Road (B&R) from 2000 to 2019. We find that a surprise Chinese monetary tightening brings about a widening in the short-term interest rate spread, a drop in the equity price, nominal depreciation against the RMB and real depreciation, and an improvement in the trade balance, on average, across the 26 B&R countries. Moreover, substantial heterogeneous effects emerge in the responses of the foreign real exchange rate and the trade balance in different groups in terms of the 26 countries' trade weights with China, capital openness, and national income levels. Finally, all the empirical evidence reveals that the expenditure switching effect plays an important role in facilitating the international transmission of China's monetary policy shock.

How Do Entrepreneurs Respond to a Crisis? Approach-Avoidance and Broaden-and-Build Perspective

In the face of a crisis, some entrepreneurs seek opportunities to thrive, whereas others strive to protect themselves from threats to survival. Curiously, there has been little examination of when and how entrepreneurs respond differently to an entrepreneurial crisis, defined as an unanticipated, impactful, and urgent event in an entrepreneur’s business operations. We posit that entrepreneurs respond in either a positive manner through creatively combining resources at hand (i.e., bricolage) or a negative manner through violating ethical values to protect the venture’s short-term interest (i.e., unethical pro-organizational behavior or UPB). Drawing upon approach-avoidance motivation and broaden-and-build theory, we examine when and how an entrepreneurial crisis leads to these different responses. We conducted a five-month longitudinal study of 100 entrepreneurs (482 observations). We found that when entrepreneur’s approach motivation was high rather than low, entrepreneurial crisis was related to an increase in bricolage and a decrease in intention to quit via increased interest. On the other hand, when entrepreneur’s avoidance motivation was high rather than low, entrepreneurial crisis was related to an increase in UPB and intention to quit via increased anger. Our study advances research on entrepreneurial responses to crisis by showing when entrepreneurs respond creatively or unethically and the associated mechanisms of these responses.

SECTORAL MARKET RISK PREMIUMS IN TURKEY

Purpose- This empirical study aims to measure the sectoral market risk premiums in the Turkish stock market for the period of 2016 and 2021 and also estimate the sectoral market risk premiums for the years 2022, 2023 and 2024. Capital Asset Pricing Model (CAPM) is the most widely used and popular method in the analysis of investment projects, stock valuation, firm valuation, mergers and acquisitions, initial public offerings, and secondary public offerings. The market risk premium in CAPM is defined as the the difference in between expected market returns and interest rates. The determination of market risk premium is one of the most important inputs in the application of the CAPM. This study intends to calculate the market risk premiums and volatilities for the sectors of Borsa Istanbul for the periods of pre-Covid (2016-2017-2018) and in the Covid-19 era (2019-2020-2021). Methodology- The monthly data from the Reuters Database are collected for the BIST100 and 17 different sectoral indexes and short-term interest rates between the years 2016 and 2021. A total of 1296 observations are obtained. Based upon the historical observations, the market risk premiums are defined as the difference between the market index returns (BIST100 and 17 sectoral indexes) and the average short-term interest rates on monthly basis. Then, using the ARIMA forecasting method, the market risk premiums are estimated for the years 2022, 2023, and 2024. A total of 576 data points are forecasted. Findings- The average risk premium on the BIST100 index is about -2.44% for the pre-Covid era and 14.01% for in-Covid era. The market risk premiums sharply increased from the pre-Covid period to the Covid period. The average volatility on the BIST100 index is about 0.23% for the pre-Covid era while 0.34% in the Covid era. The volatility of the market returns also incresed significantly. Moreover, the Cusum Square Test results point a structural break in the Covid-era. The ARIMA estimates of market risk premiums are 1.87% for 2022, 0.43% for 2023 and 0.42% for 2024. THe ARIMA estimates of volatilities are 0.70% for 2022, 0.72% for 2023 and 0.71% for 2024. Conclusion- The empirical evidence strongly support a structural change in the Covid era with higher market risk premiums and volatilities. The forecasted market risk premiums for the next three years show a diminishing trend while the forecasted volatilities show high and persistent level. Keywords: Market risk premium, BIST100, ARIMA forecasting, sectoral market risk premiums, volatility. JEL Codes: G10, G12, G17