The Behavior of Interest Rates

The evidence in Fama and Bliss (1987) that forward interestrates forecast future spot interest rates for horizons beyonda year repeats in the out-of-sample 1986–2004 period.But the inference that this forecast power is due to mean reversionof the spot rate toward a constant expected value no longerseems valid. Instead, the predictability of the spot rate capturedby forward rates seems to be due to mean reversion toward atime-varying expected value that is subject to a sequence ofapparently permanent shocks that are on balance positive tomid-1981 and on balance negative thereafter.     

Cyclical Determinants of Brokerage Commission Rates

This study evaluates the determinants of percentage commission rates in the residential brokerage industry. The model developed here predicts that market share of the brokerage firm, property selling difficulty, and prevailing market conditions influence commission rates. Empirical analysis using a sample of 14,891 condominium transactions from the Fort Lauderdale, Florida area provides support for the model’s predictions.     

The Cyclical Behavior of the Price-Cost Markup

A countercyclical markup of price over marginal cost is a key transmission mechanism for demand shocks in New Keynesian (NK) models. This paper reexamines the foundation of those models by studying the cyclicality of the price-cost markup in the private economy. We find that how the markup is measured matters for its unconditional cyclicality. Measures of the markup based on the inverse of the labor share are moderately procyclical, but are moderately countercyclical for some generalizations of the production function. NK models predict that the cyclicality of the markup should vary depending on the nature of the shock. Consistent with the NK model, we find that the markup is procyclical conditional on total factor productivity shocks and countercyclical conditional on investment-specific technology shocks. In contrast, we find that the markup increases in response to a positive demand shock. Thus, the transmission mechanism for the effects of demand shocks in sticky-price NK models is not consistent with the data.     

The Role of Interest Rates in Influencing Long-Run Homeownership Rates

As a stated policy objective, the U.S. Department of Housing and Urban Development (HUD) seeks to boost the national homeownership rate to 70 percent by 2006. To accomplish this goal, they estimate that 3.8 million additional families be added to the ranks of U.S. homeowners. Furthermore, HUD estimates that the homeownership gap between minority and nonminority families must be reduced by a full 15 percent. Many policy instruments—both targeted and otherwise—have been suggested to increase homeownership. These range from low downpayment loans, greater access to credit in underserved areas, and interest rates subsidies. However, little is know about the efficacy of these measures to raise long-term homeownership rates. In this analysis, we focus on the role of interest rates on homeownership rates and the housing stock. In particular, we provide a critical review of the literature on the relationship between housing and interest rates in contrast to other determinants of homeownership and changes in housing supply. We then present our own estimates of the influence of interest rates on homeownership and housing starts. We find that interest rates play little direct role in changing homeownership rates. While changes in interest rates may affect the timing of changes in tenure status from renter to owner, the long-run ownership rate appears independent of interest rates. We find housing starts are, however, sensitive to changes in the interest rate. This implies that housing supply, or at least the timing of changes in housing supply, is sensitive to interest rates. It is though this mechanism that the stock of owner-occupied housing expands, though household formation and immigration may leave the ownership rate unchanged. We conclude by discussing whether other instruments, such as low down payment loans and improved technology for assessment of credit risk, may potentially be better suited to increasing long-term homeownership rates.     

The Stability of Factor Models of Interest Rates

The daily term structure of interest rates is filtered to reducethe influence of cross-correlations and autocorrelations onits factors. A three-factor model is fitted to the filtereddata. We perform statistical tests, finding that factor loadingsare unstable through time for daily data. This finding is notdue to the presence of outliers nor to the selected number offactors. Such an instability problem can be solved when applyingthe factor analysis on multivariate scaled residuals, filteredusing a nonparametric technique based on functional gradientdescent.     

Interest Rates as Options

Since people can hold currency at a zero nominal interest rate, the nominal short rate cannot be negative. The real interest rate can be and has been negative, since low risk real investment opportunities like filling in the Mississippi delta do not guarantee positive returns. The inflation rate can be and has been negative, most recently (in the United States) during the Great Depression. The nominal short rate is the “shadow real interest rate” (as defined by the investment opportunity set) plus the inflation rate, or zero, whichever is greater. Thus the nominal short rate is an option. Longer term interest rates are always positive, since the future short rate may be positive even when the current short rate is zero. We can easily build this option element into our interest rate trees for backward induction or Monte Carlo simulation: just create a distribution that allows negative nominal rates, and then replace each negative rate with zero.     

Modeling International Long-Term Interest Rates

This study investigates the relationship among interest rates on the long-term government bonds of five industrialized countries. Both standard and new unit root tests are applied, all of which confirm the presence of exactly one unit root. New cointegration tests are also applied to these data. In contrast to previous research on short-term bonds, stock prices, and exchange rates, these results find little evidence of cointegration among the five long-term interest rate series. Thus, when modeling or forecasting these central government long-term bond yields, one may assume separate sets of fundamentals and difference the data to achieve stationarity. An error correction model may not be appropriate.     

Interest Rates and Credit Risk

This paper explores the effects of shifts in interest rates on corporate leverage and default in the context of a dynamic model in which the link between leverage and default risk comes from the lower incentives of overindebted entrepreneurs to guarantee firm survival. The need to finance new investment pushes firms' leverage ratio above some state‐contingent target toward which firms gradually adjust through earnings retention. The response to interest rate rises and cuts is both asymmetric and heterogeneously distributed across firms. Our results help rationalize some of the evidence regarding the risk‐taking channel of monetary policy.     

长期低利率背景下银行高风险行为分析

正货币政策中利率水平与银行高风险行为之间有着密切联系。长期低利率政策从名义收益率和资产评估两个角度,影响银行的风险管理与控制。低利率在一定程度上对收益评价有修正作用,尤其是影响名义收益目标值;而且低利率还可以通过资产评估、业务收入和现金流,对银行控制和管理风险产生负面效应。通过引用国外研究机构对外资银行业务数据分析,我们分析解读长时间的低利率政策与银行高风险行为的传导途径和作用方式。     

利率市场化背景下的利率衍生产品发展策略

利率市场化是相对于利率管制而言,是指政府部分或完全放弃对利率的管制,使利率由市场的资金供求关系决定,按价值规律自发调节,包括利率决定、利率传导、利率结构和利率管理的市场化,核心内容是利率形成机制的市场化。     

Can Futures Market Data Be Used to Understand the Behavior of Real Interest Rates?

This paper examines whether futures market data can be used to understand the behavior of real interest rates. Several ways of examining the data indicate that futures market data are not particularly informative about real interest rates. Not only does this evidence cast some doubt on results in previous research that make use of futures market data to draw inferences about real interest rates, but it also indicates that future research on real interest rates may need to turn to a different line of attack.     

市场利率与金融监管的关系研究

运用供求关系原理,设定计量模型,探讨中央银行金融监管行为对市场利率的影响,实证分析发现:短期内中央银行可以更好地控制货币供给量,进而影响市场利率,但通过货币需求量改变市场利率的效果不是很明显.     

The Structural Relation Between Mortgage and Market Interest Rates

This paper analyzes the dynamic relationship between primary and secondary mortgage markets and the short-term and long-term market interest rates. Using a series of monthly data on fixed rate mortgage rates and GNMA rates, we explore the dependence and speed of adjustment in these primary and secondary mortgage rates to each other as well as to the long and short-term government rates. The results indicate that residential mortgage rates in general, appear to follow the long-term rate and are not very sensitive to movements in the short-term interest rate.     

The Relationship between Federal Deficits and Real Interest Rates

Real interest rates fluctuated a great deal since the 1970s. In the 1980s federal deficits accelerated and their impact on both nominal and real interest rates gained lots of attention. Based on monthly and quarterly data from January 1971 to December 1997 it is found that federal deficits had significant positive effect on the real interest rates: Personal income or consumption are found to have significant positive impact on the real interest rates, whereas expected inflation and money supply are found to have negative impact on the real interest rates. These findings are consistent with the conventional economic theory.     

Accounting-Based Valuation with Changing Interest Rates

This paper generalizes Ohlsons [Contemporary Accounting Research Vol. 11 No. 2. 661–687 (1995)] equity valuation framework to allow for stochastic interest rates. Much of this analysis initially deals with the specialized setting in which earnings suffice for cum-dividend value. In such a case, the beginning-of-period (lagged) rate determines the capitalization factor, not the current rate. The underlying earnings dynamic modifies the traditional random walk model via an additional term, namely current earnings multiplied by the percentage change in interest rates. The general model retains these basic aspects of the earnings-sufficiency setting. Empirical implications bear on the returns-to-earnings regression: The earnings-response coefficient decreases as the beginning-of-period rate increases.JEL Classification: M41, G12     

Nominal Interest Rates and the News

This paper provides new estimates of the impact of monetary policy actions and macroeconomic news on the term structure of nominal interest rates. The key novelty is to parsimoniously capture the impact of news on all interest rates using a simple no‐arbitrage model. The different types of news are analyzed in a common framework by recognizing their heterogeneity, which allows for a systematic comparison of their effects. This approach leads to novel empirical findings. First, monetary policy causes a substantial amount of volatility in both short‐term and long‐term interest rates. Second, macroeconomic data surprises have small and mostly insignificant effects on the long end of the term structure. Third, the term‐structure response to macroeconomic news is consistent with considerable interest‐rate smoothing by the Federal Reserve. Fourth, monetary policy surprises are multidimensional while macroeconomic surprises are one‐dimensional.     

Interest Rates in Trade Credit Markets

All things equal, interest rates should increase with the borrower's risk. And yet, Klapper, Laeven, and Rajan (2012) cannot find such a positive relation in a broad sample of trade credit contracts. We shed some light on this puzzle by arguing that competition between informed and uninformed suppliers weakens the link between the trade credit cost and the borrower's creditworthiness. Our model implies that trade credit rates are more likely to increase with the borrower's risk if suppliers are less profitable, have high cost of funds, or sell inputs to firms plagued by moral hazard and financial distress.     

The Term Structure of Interest Rates: Bounded or Falling?

This short paper resolves an apparent contradiction between Feldman's (1989) and Riedel's (2000) equilibrium models of the term structure of interest rates under incomplete information. Feldman (1989) showed that in an incomplete information version of Cox, Ingersoll, and Ross (1985), where the stochastic productivity factors are unobservable, equilibrium term structures are ``interior' and bounded. Interestingly, Riedel (2000) showed that an incomplete information version of Lucas (1978), with an unobservable constant growth rate, induces a ``corner' unbounded equilibrium term structure: it decreases to negative infinity. This paper defines constant and stochastic asymptotic moments, clarifies the apparent conflict between Feldman's and Riedel's equilibria, and discusses implications. Because productivity and growth rates are not directly observable in the real world, the question we answer is of particular relevance.     

The Term Structure of Interest Rates in a Partially Observable Economy

This paper investigates the term structure of interest rates in a multiperiod production and exchange economy with incomplete information. Unable to observe their stochastic investment opportunities, investors engage in dynamic Bayesian inference. This results in the endogenous identification of a more complex production function which generates a richer term structure, resembling the one that actual market prices imply. In addition, this paper introduces a characteristic function of the term structure and demonstrates that, in contrast with a fully observable economy, the widely investigated expectations hypothesis holds true only if interest rates are nonstochastic.