Trend In Interest Rates Research Articles

Global Trends in Interest Rates

Global Trends in Interest Rates

The alchemy of gold: interest rates, money stock, and credit in eighteenth‐century Lisbon

AbstractThis article addresses the partial equilibrium functioning of the short‐term credit market in eighteenth‐century Lisbon and its response to massive gold inflows from Brazil. Gold inflows were a colonial rent, and thus a source of income and a financial asset that increased the liquidity supply in a credit market populated by both (direct) participants and non‐participants in the colonial trade or in mining. As a source of income it would induce a positive upward pressure on interest rates, while as a financial asset it would lead to the opposite. A method is developed to extract interest rates from notarized personal credit, unbundling the aggregate and the idiosyncratic components of risk pricing. The results show that interest rates in Lisbon did not differ critically from those observed in other cities at the core of the premodern European economy, which were spared from devastation by the earthquake that struck Lisbon in 1755. A simple model relating the market interest rate series to gold stock variations finds that the liquidity channel dominated over the endowment channel, which explains the downward trend in interest rates up until 1757 when the interest rates were freely settled. Mild credit rationing may have been introduced by a 5 per cent ceiling on interest rates that was imposed after 1757.

Bank interest rate trends in the Republic of Crimea

Bank interest rate trends in the Republic of Crimea

Natural Rates Across the Atlantic

The paper estimates a closed-economy medium-scale model for the United States and the euro area to assess the current level of the natural rate of interest and shed light on its drivers. The dynamics of the model are driven by permanent and transitory shocks that bear some connection to the explanations put forward in the literature to explain the secular downward trend in interest rates. The analysis shows that the natural rate has declined, contributing to a lowering of nominal and real rates. Risk premium shocks, a short-cut for changes in agents’ preference for safe assets, have been an important driver in the euro area; in the United States, shocks to the risk premium and to the efficiency of investment, which proxy the functioning of the financial sector, have played a major role. These differences in the importance of the shocks underscore the need to adopt a structural model with a rich stochastic structure, featuring permanent and transitory shocks.

Rents, Technical Change, and Risk Premia Accounting for Secular Trends in Interest Rates, Returns on Capital, Earning Yields, and Factor Shares

The secular decline in safe interest rates since the early 1980s has been the subject of considerable attention. In this short paper, we argue that it is important to consider the evolution of safe real rates in conjunction with three other first-order macroeconomic stylized facts: the relative constancy of the real return to productive capital, the decline in the labor share, and the decline and subsequent stabilization of the earnings yield. Through the lens of a simple accounting framework, these four facts offer suggestive insights into the economic forces that might be at work.

The effectiveness of the Fed’s quantitative easing policy: New evidence based on international interest rate differentials

This paper explores the effects of non-standard monetary policies on international yield relationships. We first document that long-term rates followed a common global downward trend that had already manifested itself prior to the financial crisis. The bond-buying operations (commonly dubbed Quantitative Easing (QE)) of the US Federal Reserve did not disturb this global co-movement – i.e. the global downward trend in interest rates. We model the relationship between USD and euro (riskless) long-term interest rates using a Cointegrated Vector Autoregressive Model (CVAR) employing recursive estimation methods. We find no evidence that QE1 (or the QE episodes) destabilized the transatlantic interest-rate relationship, nor the relationship between interest rates and the US dollar exchange rate. A robustness test using a Vector Autoregressive Model (VAR) with interest rates, inflation rates and output differentials for 11 countries (relative to US) yielded the same result. There is thus little evidence that central bank bond-buying in the US had an independent, distinct impact on US interest rates.

Demographic structure and monetary policy effectiveness: evidence from Taiwan

This study applies the time-varying parameter VAR and fully modified OLS cointegrating regression models to investigate the effect of demographic change on monetary policy effectiveness in Taiwan. Our results demonstrated that monetary policy effectiveness is negatively correlated with shares of total population in children (age < 15) and two older age groups (aged 55–64 and aged ≥ 65) but it is positively associated with shares of total population in primary working age groups (aged 15–54). These patterns of age distribution impacting on monetary policy effectiveness are highly consistent with the prediction from the life cycle hypothesis of saving and consumption. With an upward trend in ageing population but a downward trend in interest rate globally, policymakers should be cautious about the fact that monetary policy is mostly likely to be less effective in an ageing society. Policy promoting fertility (by providing strong incentives to have more children) or immigration (by attracting younger and more high-skilled laborers from population growing countries) should be listed as the top priority of economic and population policies in order to alleviate the negative impacts of rapid population ageing on the economy in the near future.

The effect of mortgage interest deduction and mortgage characteristics on house prices

In many countries, house prices are overvalued according to price-to-income ratios. We propose that the borrower’s ability to pay (ATP) through a mortgage is a long-run house price fundamental and find convincing evidence by means of cointegration tests, granger causality, and an elasticity of house prices with respect to ATP close to one. ATP incorporates the effect of a decreasing trend in interest rates, changes in mortgage interest deduction and mortgage characteristics. We apply the model to the United States of America, United Kingdom, Belgium, the Netherlands, Sweden, Norway, Finland and Denmark. The results provide an intuitive alternative to standard house price models.

금리하락이 생명보험회사 자산운용실태에 미치는 영향

본 연구의 목적은 금리추세가 국내생명보험회사들의 자산운용 실태에 미치는 영향을 분석하여 문제점을 도출하고, 자산운용전략에 대한 방향성을 제시하고자 하였다. 연구방법은 2000년~2014년 동안에 국내 생명보험회사들의 자산현황 및 운용자산 내역, 자산배분실태, 유가증권 내역을 시계열 분석하였고, 총자산 및 자산별 수익률을 분석하였으며, 금리 주가와 운용수익률 간의 상관관계와 회귀분석을 실시하였다. 분석결과는 안전자산인 국공채의 비중은 증가한 반면에 위험자산인 주식의 비중은 감소하여 수익성 보다 안정성 위주로 자산운용을 하고 있었다. 금리와 총자산수익률, 운용자산수익률, 유가증권수익률 간에 높은 양(+)의 상관계수가 산출되었으며, 금리와의 상관관계에서 총자산수익률 보다는 운용자산수익률의 상관관계가 높았고, 운용자산수익률 보다는 유가증권수익률의 상관관계가 더 높았다. KOSPI 주가지수와 운용수익률 간에는 상관계수가 음(-)으로 나타났다. 시사점은 안정성 위주의 자산운용으로 금리하락이 역마진 리스크를 높이고 있어서 자산운용의 변화가 필요하다는 것이다. The purpose of this paper is to see what the problem is and what the direction of the strategy of asset management after this study has analyzed asset management status of domestic life insurance companies according to interest rate trends, analyzing in time series management asset lists, asset distribution state, and securities list of life insurance companies during 2000~2014. It has carried correlation analysis and regression analysis between yield and bond interest KOSPI index. As the study result, life insurance companies have managed assets in stability than profitability. The correlation coefficient between interest rate and performance rates of total asset, management asset and securities is highly plus, correlation of management asset performance rate is higher than that of total asset performance rate, and the correlation of securities performance rate is higher than that of management asset performance rate. The correlation coefficient of KOSPI and performance rate shows minus. The suggestion is that the change of asset management is required as the interest decline rises up a reverse margin risk because of the asset management of stability.

Did Quantitative Easing Affect Interest Rates Outside the US? New Evidence Based on Interest Rate Differentials

This paper explores the effects of non-standard monetary policies on international yield relationships. Based on a descriptive analysis of international long-term yields, we find evidence that long-term rates followed a global downward trend prior to as well as during the financial crisis. Comparing interest rate developments in the US and the eurozone, it is difficult to detect a distinct impact of the first round of the Fed’s quantitative easing programme (QE1) on US interest rates for which the global environment – the global downward trend in interest rates – does not account. Motivated by these findings, we analyse the impact of the Fed’s QE1 programme on the stability of the US-euro long-term interest rate relationship by using a CVAR (cointegrated vector autoregressive) model and, in particular, recursive estimation methods. Using data gathered between 2002 and 2014, we find limited evidence that QE1 caused the break-up or destabilised the transatlantic interest rate relationship. Taking global interest rate developments into account, we thus find no significant evidence that QE had any independent, distinct impact on US interest rates.

저금리에 따른 손해보험회사 자산운용의 효율화 방안 연구

The purpose of this paper is to see what the problem is and what the direction of the strategy of asset management after this study has analyzed asset management status of nonlife insurance companies according to interest rate trends, analyzing in time series asset state, management asset lists, asset distribution state, securities list and total asset yield of Nonlife insurance companies during year 2009~2014. As the study result, nonlife insurance companies have managed assets in stability than profitability according to safety asset was increased, but risky asset was decreased. Performance rate of total asset was dropped according to interest rate declined trends. Trend between stock index and performance rates of total asset was not accord. The correlation coefficient between interest rate and performance rates of total asset was highly plus, but the correlation coefficient of KOSPI and performance rate of total asset showed minus.

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Banking advice on fixed or adjustable mortgage rates

Since the mid-1990s, Sweden has experienced a period of rapidly rising property prices, and household indebtedness has kept an even pace. The choice between fixed and adjustable interest rates has become increasingly important. This article analyses mortgage rate advice issued by a bank adviser in monthly newsletters during the period 2001–2009, focusing on the content and searching for patterns that may be related to earlier findings. The banking advice is classified into two dimensions: the content and the strength of advice. We find that a large part of the advice suggests that borrowers divide their loans and choose both adjustable and fixed interest rates. Contrary to existing literature, there is no apparent association between the advice provided and interest rate trends (neither short- nor long-term trends). Nor do we find a significant association between the advice and the interest rate gap between fixed and variable rates. This finding implies that the advice in these newsletters was formulated on a rather unclear basis and was of limited use for borrowers.

Risk management of structured notes

Structured notes have become a focus of controversy lately, due to the much-publicized losses sustained by investors who were caught off guard by the reversal in the trend of interest rates. Since structured notes are relatively new and not as well known as other, more traditional, investment options in the past few years, it is important that people should be educated about this instrument. This paper will introduce common structures of risk and explain the type of analysis in which investors should engage both prior to and subsequent to purchase. It is intended to (1) ascertain the nature and characteristics of structured notes, (2) to examine the risks inherent in structured notes, and (3) to recommend some risk-managing strategies when investing in structured notes. Key words: Structured notes, derivatives, investments, risk management.

Cross-Country Interest Rate Trends: The Case of European Countries

In this study, we investigate the co-movements in interest rates for 16 European countries. For this purpose, we analyze the time series properties of short-term and long-term interest rates, both real and nominal. The evidence suggests that there is some degree of co-integration for the interest rates between European Countries. The number of countries that are co-integrated gets larger as we turn our attention from long-term interest rates to short-term interest rates. However, as we turn our attention from nominal interest rates to real interest rates the number of country pairs that are co-integrated gets smaller. When we investigate for common features, no common feature is found to exist between any of the country pairs investigated.

Financing affordable housing in Niger State of Nigeria through commercial banks : trend, issues and future directions

This study explored the trend in interest rates on real estate loans granted by commercial banks in Nigeria. Primary data used for the study were collected from selected real estate firms in Minna, the capital of Niger State of Nigeria, which are active in the residential property market in the city. The secondary data were obtained from the Central Bank of Nigeria (CBN) and the National Bureau of Statistics (NBS). Results of data analysis revealed that variation in interest rates on real estate loans granted by commercial banks in Nigeria in the past three years was statistically significant at 0.05 level ofsignificance, an indication that interest rates on real estate loans granted by commercial banks in the country did not follow a similar trend. The paper examined the implications ofthis trend on affordable housing finance in Niger State of Nigeria and argues that more than 90 per cent of the households in Niger State could not afford real estate loans granted by commercial banks for housing development and acquisition in the area at the current interest rates. The paper concluded that greater involvement ofthe government at all levels in the provision of long-term real estate credit at affordable interest rates is necessary if housing finance to be made affordable for the low-income groups in Niger State, Nigeria.

An Evaluation Of Factors Influencing Pension Managers Investment Decisions In Kenya

This study focused on the analysis of factors influencing pension fund managers investment decisions. The objectives of the study were to identify investment options available to pension fund managers, identify factors that are considered by fund managers when making investment decisions and identify challenges faced by fund managers in making investment decisions. Three representatives from each of the twelve registered fund managers completed the study questionnaire. The questionnaire was administered through the drop and pick later method. Data was analyzed using SPSS (Statistical Package for Social Sciences) and summarized using descriptive statistics such as mean, standard deviation, frequencies, percentages. The study found out that returns, investment risks and trends in interest rates were the most important factors affecting pension managers investment decisions. Decision-making preferences, investment portfolio, past performance and legal framework were rated as less important. Consistency and return maximization in the rate of returns (sustainable long term returns), prevailing economic and political situations-inflation, global markets which determines key indicators like interest rates/ exchange and risk profile of the scheme investment (risk assessment of the board of trustees) in that order are also important qualitative factors in decision making for pension fund investment. The research also found out that few investment avenues/ vehicles, bureaucracy in consultations with trustees and unpredictable/ turbulent and dynamic market situations in that order are the major challenges facing fund managers investing pension funds. The researcher identified a need for a portfolio that will give higher returns. There is also need to harmonize all regulations relating to pensions in order to create efficiency and avoid confusion. The research also recommends that RBA benchmarks with the world best in order to help the sector to achieve growth. The promotion of retirement funds and regulatory functions should be separated to avoid conflict of interest in the two roles.

Interest Rate Risk in the Banking Business

Immanent part of the banking business is interest rate risk, whose presence significantly affects on the business performance of the bank. The current conditions of crisis and instability in the market are best manifested through exactly this kind of banking risks. Given that the banks can not eliminate its presence, its commercial success depends significantly on the ability of their management to detect interest rate trends and potential sources of interest rate risk, and to build effective mechanisms of protection against risks. The aim of this paper is to introduce ways of expression of this risk, as well as the methods used in modern banking to reduce the negative consequences of the existence of this risk to the bank. .

Managing the risk of loan prepayments and the optimal structure of short term lending rates

Loan pricing is an extremely important aspect of bank operations because loans are typically over two-thirds of bank assets. Many researchers have analyzed the theoretical and empirical impact of how different factors should and do affect fixed rate loan rates and loan prepayments. However, a theoretical decision making model for maximizing expected profit in a declining rate environment has not been developed. After describing the conditions for the optimal loan rate, we develop numerical solutions for it under varying conditions. The varying conditions include the trend in interest rates, volatility of interest rates, and loan maturity.

ESTIMATING THE EQUITY RISK PREMIUM AND EQUITY COSTS: NEW WAYS OF LOOKING AT OLD DATA

This article examines three alternative ways of estimating the expected return on the equity market in using the CAPM or some other risk premium model. The three techniques are (1) direct estimation of the average nominal equity return for use as a forecast nominal equity return; (2) estimation of the average real equity return, which can then be added to a forecast inflation rate; and (3) estimation of an average equity risk premium, which is then added to a current risk‐free rate. Ibbotson and Sinquefeld's data on annual holding period returns are used to test the validity of their assumption that the equity risk premium follows a random walk and that the third of these approaches is thus the best method.The paper reaches three major conclusions. First, each of these three techniques involves a “bias” of some kind. The use of average equity returns as a forecast is subject to “risk‐free rate” and “inflation rate” biases, while the use of an average equity risk premium is subject to a “term premium” bias. As a result, only the data can tell us which approach is best. Second, from analyzing equity and bond return data and the trend in interest rates, the author concludes that the term premium bias when using average historic equity risk premium is by far the largest of the three sources of bias. Indeed, the popular practice of adding an historic average equity risk premium to the 30‐year Treasury bond rate significantly overstates equity costs. Third, after examining equity rates of return back to 1871, the author concludes that the real equity return seems to follow a process that is close to a random walk and is thus the “best” of the three techniques to use as a “naive” forecast.