Interesting Structure Research Articles

The Term Structure of Interest Rates in a Heterogeneous Monetary Union

The Term Structure of Interest Rates in a Heterogeneous Monetary Union

The relation between Keynesian monetary theory and demand-led growth: a Sraffian exploration

This article integrates the Sraffian approach to demand-led growth theory with insights from Keynes’s concept of finance and from the monetary circuit approach. The paper’s first contribution is the extension of Garegnani’s interpretation of Keynes’s General Theory’s originality and limitations to Keynes’s 1937–1938 papers on ‘finance.’ In both cases, it is a question of freeing Keynes from the ties of Marginalist theory. Second, the paper identifies a complementarity between the Keynesian concept of finance, some insights from the monetary circuit, and the role attributed by the Sraffian take of demand-led growth to the autonomous components of demand, which are also Kalecki’s external markets. Finally, the authors propose a subsidiary role for the liquidity-preference theory in the context of the determination of the structure of interest rates, given the short-term base rate set by monetary authorities.

Borrowing Choices Of Local Governments And The Term Structure Of Interest Rates

Borrowing Choices Of Local Governments And The Term Structure Of Interest Rates

Implications of the Term Structure of Interest Rates for the Duration of Corporate Investment

Implications of the Term Structure of Interest Rates for the Duration of Corporate Investment

Regime Shifts in a Long-run Risks Model of U.S. Stock and Treasury Bond Markets

I study the joint determinants of stock and bond returns in Bansal and Yaron (2004) long-run risks model framework with regime shifts in consumption and in‡ation dynamics –in particular, the means, volatilities, and the correlation structure between consumption growth and in‡ation are regime-dependent. This general equilibrium framework can (1) generate time-varying and switching signs of stock and bond correlations, as well as switching signs of bond risk premium; (2) quantitatively reproduce various other salient empirical features in stock and bond markets, including time-varying equity and bond return premia, regime shifts in real and nominal yield curve, the violation of expectations hypothesis of bond returns. The model shows that term structure of interest rates and stock-bond correlation are intimately related to business cycles, while long-run risks play a more important role to account for high equity premium than business cycle risks.

Term Structure of Interest Rates with Short-Run and Long-Run Risks

Term Structure of Interest Rates with Short-Run and Long-Run Risks

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

Public debt management and the interaction between fiscal and monetary policies

PurposeThis paper aims to investigate the existing relations between the management of public bonds on the dynamics of debt, term structure of interest rates and economic cycle, through a dynamic stochastic general equilibrium model (DSGE), which was estimated through Bayesian inference techniques using data from Brazil.Design/methodology/approachThe model developed was used to investigate the effects of the public debt average maturity management when the economy faces a monetary policy shock. For this, three management scenarios are evaluated, including Brazilian securities average term.FindingsContrary to what might be inferred from DSGE models that limited the analysis of the debt term by imposing only one-period bonds, a contractionary monetary policy shock does not necessarily cause public debt to increase significantly. Debt term structure plays a crucial role in this result since the government does not need to roll the debt over at higher costs when the debt term profile is longer, reducing the debt service costs and then the impact on the overall debt.Originality/valueDespite the relevance of this theme and its implications for the dynamics of the economy, there is still a gap to be filled in the literature when using DSGE models, since most part of the work that used this methodology limited the analysis of the debt term by imposing that government issues only one-period bonds. This paper differs from the others insofar as it promotes an investigation focused on the role played by debt maturity management on the performance of the contractionary monetary policy. This approach can generate a better understanding of debt management policy and its interaction with fiscal and monetary policies.

Using the Entirety of the Term Structure to Forecast Recessions

Using a logit model and quarterly data from 1962 to 2021, we test the forecasting power of the yield spread, a popular leading indicator, and show that forecasting models that include the entirety of the term structure of interest rates provide more accurate estimates of future economic downturns. We also show that models that only include the yield spread are implicitly imposing restrictions in the coefficients of the model resulting in lower predictive power and omitted variable bias issues.

The Contributions of Stephen A. Ross to Financial Economics

Stephen A. Ross was one of the most influential scholars in the field of financial economics in the late twentieth century. Ross's work was central to several novel domains of economic inquiry. His contributions included the arbitrage pricing theory (APT), the risk-neutral pricing of contingent claims, the binomial option pricing model, a theory of the term structure of interest rates, a seminal contribution to the economic theory of agency, and insights about conditioning biases in ex post performance measurement. In this article, we discuss his seminal papers and the broad scope of his curiosity within the arc of a remarkably productive and influential career that spanned five decades and yet ended sooner than most who knew him expected.

Bayesian Estimation For Cox Ingersoll Ross Process

the model of term structure of interest rates are consider the most significant and computationally difficult portion of the modern finance due to a relative complexity of using techniques. This article concerns the Bayesian estimation of interest rate models. Assume the short term interest rate follows the Cox Ingersoll Ross (CIR) process , this process has several feature. In particular mean reverting and the other feature is remanis non- negative , so this is what distinguishes it from previous models. It is implement in the R programing.

A Structural Measure of the Shadow Federal Funds Rate

<ns3:p>We propose a shadow policy interest rate based on an estimated structural model that accounts for the zero lower bound. The lower bound constraint, if expected to bind, is contractionary and increases the shadow rate compared to an unconstrained systematic policy response. By contrast, forward guidance and other unconventional policies that extend the expected duration of zero-interest-rate policy are expansionary and decrease the shadow rate. By quantifying these distinct effects, our structural shadow federal funds rate better captures the stance of monetary policy given economic conditions than a shadow rate based only on the term structure of interest rates.</ns3:p>

The impact of the Federal Reserve System’s interest rate channel on the components of aggregate demand

Motivation: Monetary policy decisions, through the process of transmission mechanism, affect the term structure of nominal interest rates as well as other asset prices, and thus influences aggregate demand (e.g. consumer spending and business investments) and price levels through these effects. The aspect of monetary transmission to various components of aggregate demand has been relatively little studied in the literature of the subject.
 Aim: The main aim of the study is to empirically investigate the effect of the Fed’s monetary policy on major components of aggregate demand over the past 35 years. To this aim, the scale and timing of the interest rate pass-through to economic activity have been examined.
 Results: The empirical findings showed that that between 1984 and 2019, the sensitivity of consumption and investment expenditures to interest rate impulses were different. Firstly, fixed investment spending accounted for a significant part that was responsible for the response of real GDP following an interest rate shock. Secondly, in the case of personal consumption expenditures, expenses for durable goods were more sensitive to changes in the Fed’s interest rate than spending on services and nondurable goods. In this way, the study expands the existing literature by reporting the effects of the Fed’s monetary policy on major components of aggregate demand over the past 35 years

GEOPOLITICAL RISKS AND THE HIGH-FREQUENCY MOVEMENTS OF THE US TERM STRUCTURE OF INTEREST RATES

We use daily data for the period 25th November 1985 to 10th March 2020 to analyze the impact of newspapers-based measures of geopolitical risks (GPRs) on United States (US) Treasury securities by considering the level, slope and curvature factors derived from the term structure of interest rates of maturities covering 1 to 30 years. No evidence of predictability of the overall GPRs (or for threats and acts) is detected using linear causality tests. However, evidence of structural breaks and nonlinearity is provided by statistical tests performed on the linear model, which indicates that the Granger causality cannot be relied upon, as they are based on a misspecified framework. As a result, we use a data-driven approach, specifically a nonparametric causality-in-quantiles test, which is robust to misspecification due to regime changes and nonlinearity, to reconsider the predictive ability of the overall and decomposed GPRs on the three latent factors. Moreover, the zero lower bound situation, visible in our sample period, is captured by the lower quantiles, as this framework allows us to capture the entire conditional distribution of the three factors. Using this robust model, we find overwhelming evidence of causality from the GPRs, with relatively stronger effects from threats than acts, for the entire conditional distribution of the three factors, with higher impacts on medium- and long-run maturities, i.e., curvature and level factors, suggesting the predictability of the entire US term structure based on information contained in GPRs. Our results have important implications for academics, investors and policymakers.

MACROECONOMIC VARIABLES AND CAPITAL STRUCTURE: PUBLIC FINANCE AND INSURANCE IN LATIN AMERICA AND ASIA

This article analyzes the relationship between macroeconomic variables and the capital structure of public finance and insurance companies in Latin America and Asia. The variables used were: Gross Domestic Product (GDP), Exchange Rate (ER), Interest Rate (%Δ IR), and Capital Structure (CS). Data were analyzed annually from 2010 to 2018 by static panel analysis and multiple regression using the Newey-West estimator. Interest rate and exchange rate were negatively correlated with CS. However, GDP was not significantly correlated with CS at 10% probability. It is concluded that macroeconomics interferes with the capital structure of financial institutions in Latin America and Asia.

(Un)expected monetary policy shocks and term premia

SummaryThe term structure of interest rates is crucial for the transmission of monetary policy to financial markets and the macroeconomy. Disentangling the impact of monetary policy on the components of interest rates, expected short rates, and term premia is essential to understanding this channel. To accomplish this, we provide a quantitative structural model with endogenous, time‐varying term premia that are consistent with empirical findings. News about future policy, in contrast to unexpected policy shocks, has quantitatively significant effects on term premia along the entire term structure. This provides a plausible explanation for partly contradictory estimates in the empirical literature.

Monetary policy and market interest rates: literature review using text analysis

PurposeThis paper aims to examine the relationship between monetary policy and market interest rates. This paper examines the efficiency of interest rate channel used in monetary regulation as well as implementation of monetary policy under low interest rates. This paper examines and reviews the scientific literature published over the past 30 years to determine primary research areas, to summarize their results and to identify appropriate measures of monetary policy to be used in practice in changing economic environment.Design/methodology/approachThis paper reviews 94 studies focused on the relationship between monetary policy and market interest rates in terms of meeting the goals of macroeconomic regulation. The articles are selected on the basis of Scopus citation and bibliometric analysis. A major feature of this paper is the use of text analysis (data preparation, frequency of terms and collocations use, examination of relationships between terms, use of principal component analysis to determine research thematic areas). Using the method of principal component analysis while studying abstracts this paper reveals thematic areas of the research. Thus, the conducted text analysis provides unbiased results.FindingsFirst, this paper examines the whole complex of relationships between monetary policy of central banks and market interest rates. Second, this research reviews a wide range of literature including recent studies focused on specific features of monetary policy under low and negative rates. Third, this study identifies and summarizes the thematic areas of all the researches using text analysis (transmission mechanism of monetary policy, efficiency of zero interest rate policy, monetary policy and term structure of interest rates, monetary policy and interest rate risk of banks, monetary policy of central banks and financial stability). Finally, this paper presents the most important findings of the studied articles related to the current situation and trends on the financial market as well as further research opportunities. This paper finds the principal results of studies on significant issues of monetary policy in terms of its efficiency under low interest rates, influence of its instruments on term structure of interest rates and role of banking sector in implementation of transmission mechanism of monetary policy.Research limitations/implicationsThe limitation of the review is examining articles for the study period of 30 years.Practical implicationsCentral banks of emerging economies should apply the instruments and results of the countries' monetary policies reviewed in this paper. Using text analysis this paper reveals the main thematic areas and summarizes findings of the articles under study. The analysis allows presenting the main ideas related to current economic situation.Social implicationsThe findings are of great value for adjusting the monetary policy of central banks. Also, these are important for people because these show the significant role of monetary policy for the economic growth.Originality/valueUsing text analysis this paper reveals the main thematic areas (transmission mechanism of monetary policy, efficiency of zero interest rate policy, monetary policy and term structure of interest rates, monetary policy and interest rate risk of banks, monetary policy of central banks and financial stability) and summarizes findings of the articles under study. The analysis allows defining the current ideas relevant to the monetary policy of developing countries. It is important for central banks because it examines the monetary policy problems and proposes optimal solutions.

Model-free nonparametric bounds for zero-coupon interest rates in bond markets without the no arbitrage principle

ABSTRACT Real-world market quotes of bonds can sometimes contradict the no arbitrage principle within the discounted cash flow model. This makes some kinds of no-arbitrage-based analyses impossible, e.g., inferring the bounds for the term structure of interest rates. Instead of using a more sophisticated model to account for pricing peculiarities, we propose a replacement for the no arbitrage principle. While being theoretically plausible, it does not get contradicted by the data – thus, we can infer the same kind of term structure bounds from it, even given the contradictions with the no arbitrage principle. Using a dataset of Russian sovereign bond quotes, we show that the no arbitrage inconsistency problem arises in 10–20% of cases and that the proposed approach successfully overcomes it.

Sustainable Construction and Financing—Asset-Backed Securitization of Expressway’s Usufruct with Redeemable Rights

Asset-backed securitization will greatly promote the sustainability of infrastructure construction and financing. However, there are quite limited researches conducted in this field. Given the project characteristics of infrastructure project securities, this paper proposes the issuance steps of redeemable asset-backed notes (ABN) based on the infrastructure project’s usufruct as the basic asset. Taking the expressway franchise as an example, the issuing scale and coupon rate of the redeemable ABN are determined by the expected cash flow of the expressway, the term structure of random interest rates, and the option-adjusted spread (OAS). In addition, this research analyzes the duration, convexity, and OAS.

Dynamic spillovers between the term structure of interest rates, bitcoin, and safe-haven currencies

This study examines the connectedness between the US yield curve components (i.e., level, slope, and curvature), exchange rates, and the historical volatility of the exchange rates of the main safe-haven fiat currencies (Canada, Switzerland, EURO, Japan, and the UK) and the leading cryptocurrency, the Bitcoin. Results of the static analysis show that the level and slope of the yield curve are net transmitters of shocks to both the exchange rate and its volatility. The exchange rate of the Euro and the volatility of the Euro and the Canadian dollar exchange rate are net transmitters of shocks. Meanwhile, the curvature of the yield curve and the Japanese Yen, Swiss Franc, and British Pound act mainly as net receivers. Our static connectedness analysis shows that Bitcoin is mainly independent of shocks from the yield curve’s level, slope, and curvature, and from any main currency investigated. These findings hint that Bitcoin might provide hedging benefits. However, similar to the static analysis, our dynamic analysis shows that during different periods and particularly in stressful times, Bitcoin is far from being isolated from other currencies or the yield curve components. The dynamic analysis allows us to observe Bitcoin’s connectedness in times of stress. Evidence supporting this contention is the substantially increased connectedness due to policy shocks, political uncertainty, and systemic crisis, implying no empirical support for Bitcoin’s safe-haven property during stress times. The increased connectedness in the dynamic analysis compared with the static approach implies that in normal times and especially in stressful times, Bitcoin has the property of a diversifier. The results may have important implications for investors and policymakers regarding their risk monitoring and their assets allocation and investment strategies.