Does Real-Time Macroeconomic Information Help to Predict Interest Rates?

We analyze the predictive ability of real-time macroeconomic information for the yield curve of interest rates. We specify a mixed-frequency macro-yields model in real time that incorporates interest rate surveys and treats macroeconomic factors as unobservable components. Results indicate that real-time macroeconomic information is helpful to predict interest rates, and that data revisions drive a superior predictive ability of revised macro data over real-time macro data. We also find that interest rate surveys can have significant predictive power over and above real-time macroeconomic variables.     

Money stock revisions and unanticipated money growth

An important ‘empirical regularity’ is the strong positive effect of money shocks on output and employment. One strand of business cycle theory relates this finding to temporary confusions between absolute and relative price changes. These models predict positive output effects of unperceived monetary movements, but the quantitative importance of unperceived shifts in nominal aggregates is subject to question. Another strand of theory, based on long-term nominal contracts and analogous price-setting institutions, generates output effects from unanticipated, but not necessarily contemporaneously unperceived, money shocks. However, the real effects of unpredicted, but contemporaneously understood, monetary changes are not obviously consistent with efficient institutional arrangements. The present paper provides some empirical evidence on the two types of theories by analyzing the output effects associated with revisions in the money stock data, where the revisions are interpreted as components of unperceived monetary movements. The revisions turn out to have no significant explanatory power for output. Previous findings that innovations from an estimated money growth equation have a significant output effect remain intact when the revisions are included as separate explanatory variables. Overall, the study provides a small amount of evidence against the special role of unperceived, as opposed to unanticipated, money movements as a determinant of business fluctuations.     

Brazilian retail banking and the 2008 financial crisis: Were the government-controlled banks that important?

We revisit the interest rate pass-through effect using weekly retail banking data from May 2006 to March 2010. Our choice of data avoids caveats of previous studies concerning excessive data aggregation and the estimation of how fast changes in benchmark interest rates impact those charged on short-term loans in Brazil. Our analysis focuses on four large retail banks – two of them privately owned and run, two of them government-controlled – before and after September 2008. They account for 60% of the total credit supplied by retail banks. Results indicate that government control over two of the largest banks, supposedly an asset for crisis management, may have had higher welfare costs than assumed. We find no evidence of asymmetry in adjustments of retail rates charged by private and government-controlled banks.     

Do brokerage houses add value? The market impact of UK sell-side analyst recommendation changes

This paper reports on the first full study investigating the economic role of sell-side analysts’ stock recommendations in the UK market. We also explore whether UK analysts are, in practice, influenced by the same biases as that reported for their US counterparts.We find that share prices are significantly influenced by analysts’ recommendation changes, not only at the time of the recommendation change but also in subsequent months. The price reaction to new sell recommendations is greater than the price reaction to new buy recommendations and exhibits post-recommendation drift which is consistent with initial underreaction to bad news. Returns generated are influenced, cross-sectionally, by factors associated with a firm's information environment and analyst incentives such as size, same-sign earnings forecast revisions and recommendation changes that skip a rank.We find that UK analysts’ investment recommendations in practice appear less susceptible to potential conflicts of interest than their US counterparts. The ratio of new sell to buy recommendations is higher in the UK and a greater proportion of such recommendations are accompanied by same-sign earnings forecast revisions than their equivalents in the US. We find brokerage house investment banking relationships do not appear to impact (adversely) on abnormal returns.     

The Effects of Inflation and Money Supply Announcements on Interest Rates

This paper examines the impact of the money supply and inflation rate announcements on interest rates. Survey data on expectations of the money supply and consumer and producer price indexes are used to distinguish anticipated and unanticipated components of the announcements. This distinction is used to test for the efficiency of the financial market response to the announcements of new information. The results indicate that the unanticipated components of the announced changes in the Producers Price Index and in the money supply have an immediate positive effect on short-term interest rates. The Consumer Price Index announcement has no apparent effect. There is no evidence of a delayed announcement effect. However, there is some indication of a liquidity effect of the money supply change on interest rates. This takes place when reserves are changing and several weeks prior to the information announcement.     

International stock return predictability: Evidence from new statistical tests

We investigate whether stock returns of international markets are predictable from a range of fundamentals including key financial ratios (dividend-price ratio, dividend-yield, earnings-price ratio, dividend-payout ratio), technical indicators (price pressure, change in volume), and short-term interest rates. We adopt two new alternative testing and estimation methods: the improved augmented regression method and wild bootstrapping of predictive model based on a restricted VAR form. Both methods take explicit account of endogeneity of predictors, providing bias-reduced estimation and improved statistical inference in small samples. From monthly data of 16 Asia-Pacific (including U.S.) and 21 European stock markets from 2000 to 2014, we find that the financial ratios show weak predictive ability with small effect sizes and poor out-of-sample forecasting performances. In contrast, the price pressure and interest rate are found to be strong predictors for stock return with large effect sizes and satisfactory out-of-sample forecasting performance.     

International market response to announcements of US macroeconomic data

This paper presents empirical evidence relating the announcement effects of US money supply and inflation (CPI and PPI) to Eurocurrency interest rates and the foreign currency markets (both spot and forward) for seven industrial countries over the period 1977–1982. The results indicate that unanticipated components of announced changes in money supply have a significant positive effect on Eurocurrency interest rates and a negative effect (implying dollar appreciation) on the spot exchange rates. Unanticipated changes in PPI have a positive significant effect on interest rates, a small surprisingly negative impact on spot exchange rates, and a positive effect on gold prices. The CPI has no effect on either market.     

The Federal Reserve,the Emerging Markets,and Capital Controls: A High‐Frequency Empirical Investigation

In this paper, I use weekly data from seven emerging nations—four in Latin America and three in Asia—to investigate the extent to which changes in Fed policy interest rates have been transmitted into domestic short‐term interest rates during the 2000s. The results suggest that there is indeed an interest rates “pass‐through” from the Fed to emerging markets. However, the extent of transmission of interest rate shocks is different—in terms of impact, steady state effect, and dynamics—in Latin America and Asia. The results also indicate that capital controls are not an effective tool for isolating emerging countries from global interest rate disturbances. Changes in the slope of the U.S. yield curve, including changes generated by a “twist” policy, affect domestic interest rates in emerging countries. I also provide a detailed case study for Chile.     

The international transmission of interest rate shocks: The Federal Reserve and emerging markets in Latin America and Asia

This paper analyzes the effects of changes in the U.S. Federal Reserve's Federal Funds rate on emerging countries' interest rates using high frequency (weekly) data. I also investigate how changes in the U.S. term structure affect short term rates' differentials. Other shocks include changes in the U.S. dollar–Euro exchange rate, changes in the international price of oil, risk ratings, and the degree of capital mobility. The results indicate that there is a strong and fairly rapid transmission of changes in the Federal Funds rate into interest rates in the Latin American countries in the sample. This effect is equally large in the Asian nations in the long run. The adjustment path is different across the two regions, however. Adjustment is very fast and cyclical in Latin America; it is gradual and slower in East Asia.     

汇率变动与就业关系研究——来自中国的经验证据

本文借鉴跨期最优代理人模型,分析了人民币实际有效汇率、工资以及贷款利率与社会就业量之间的关系。本文的研究表明人民币实际有效汇率和贷款利率均为社会就业水平的重要影响因素,而工资水平对就业的影响相对较小。总体而言,人民币实际有效汇率变动对就业将产生负面冲击,利率变化主要通过通货膨胀效应和成本效应作用于社会就业水平。此外,本文分阶段考察了汇率与就业之间的关系。结论表明自1995Q1至2002Q1之间,人民币实际有效汇率升值通过收入效应与贸易收支收入抑制了社会就业;之后,人民币实际有效汇率主要通过资本品价格效应作用于就业,人民币实际有效汇率升值促进了社会就业水平的提高,相反,贬值反而降低了社会就业水平。     

Temporal aggregation and unit roots in nominal foreign exchange rates

Extant empirical evidence on the logarithm of the daily and weekly spot exchange rates indicates the presence of unit roots. At a lower frequency, however, there is evidence that monthly spot rates do not have a unit root, although the autocorrelation coefficient may be close to one in absolute value. Unlike earlier studies, the present article applies various tests to data with different frequencies and reports evidence suggesting that exchange rates may not have unit roots. Absence of nonstationarity in the observations implies that econometric models may not have to apply any differencing.The authors gratefully acknowledge Hashem Dezhbakhsh for helpful suggestions. Comments are welcome.     

The value relevance of timely information: The case of comparable store sales growth

Investors and analysts have called for more timely disclosure of corporate information. Responding to these demands, some retail firms issue comparable store sales (CSS) on a monthly or a quarterly basis in addition to an annual basis. This study examines whether a timely disclosure of CSS provides value-relevant information to market participants by examining investors' and financial analysts' responses at the time of CSS disclosures (short-horizon) and over the month or the quarter (long-horizon). We find that both monthly and quarterly CSS are associated with contemporaneous market returns and analyst forecast revisions. More importantly, we find that quarterly CSS news becomes less important to investors when firms provide more timely CSS information, indicating that monthly CSS reports may preempt the information content of quarterly CSS. Additional tests show that investors and analysts rely less on CSS if CSS news and earnings (sales) news are inconsistent.     

Mortgage Loan Rates and Deposit Costs: Are They Reliably Linked?

The deposit-cost markup theory of Jaffe and Rosens type suggests that the cost of attracting funds determines prices (mortgage loan rates). Other equally plausible theories argue for the reverse chain of events, whereby mortgage loan rates induce changes in the deposit interest rates. We investigate these alternative hypotheses over the monthly period 1970 to 1994 using causality and cointegration tests with allowances for possible structural breaks. The results from error-correction models indicate the presence of bidirectional causality between the mortgage loan rates and the deposit interest rates. The results further show that the two variables exhibit a strong cointegrating relationship and that several factors play an important role in determining both variables. Our findings underscore the need to continue with efforts to develop and test multivariate error-correction models for the joint determination of the mortgage loan rate and the deposit interest rate.     

框架效应与贷款决策:一项金融素养的实验研究

过度借贷是一个常见的非理性决策。近年来,网络借贷市场的激烈竞争降低了申请贷款门槛,导致金融素养较低的人群开始参与网络借贷,进一步加剧了过度借贷现象。本文采用实验室实验方法,给被试者提供本质上完全等价的贷款产品,同时外生地变化贷款成本形式(绝对数值形式的利息相比于百分数形式的利率、单期利率相比于多期复利),研究贷款成本的展示形式对贷款意愿是否存在影响。结果表明,相比于月利率,展示月利息使得被试者的贷款接受率显著上升21.3个百分点;相比于年化复利,展示月利率使得被试者的贷款接受率显著上升7.91个百分点。这两种框架效应可分别由金融素养的知识层面和思维层面所解释。本文对网络小额贷款场景下的过度借贷提出了一种新的解释——贷款成本的框架效应,并采用实验经济学方法对此提供了可靠的证据。本文研究结论提示,加强金融教育和制定相关法规双措并举,有助于人们做出更审慎的贷款决策。     

Exchange rates, interest rates, and money-stock announcements: a theoretical exposition

When the Federal Reserve announce a larger than anticipated weekly level of the US money stock (M1) the dollar appreciates and short-term interest rates increase because of an expected liquidity effect, but long-term interest rates and particularly long-run forward interest rates increase because of an expected inflation effect. The two effects are not mutually exclusive but coexist when market participants are not completely sure of the Fed's policy rule, and thus react in a weighted average manner with weights that reflect subjective probabilities about different Federal Reserve money growth policies.     

Reserves Announcements and Interest Rates: Does Monetary Policy Matter?

The author provides evidence on the perceived existence of strong liquidity effect. The analysis is based on the response of the term structure of interest rates to the weekly Federal Reserve announcements of bank reserves during the post-October 1979 period. It is shown that unanticipated changes in the mix between borrowed and nonborrowed reserves cause expected real interest rates to change after the announcement because they provide information about a future change in the supply of money. A precise model is developed and tested during subperiods of nonborrowed and borrowed reserves targeting by the Fed.     

NEW EVIDENCE CONCERNING THE EXPECTATIONS THEORY FOR THE SHORT END OF THE MATURITY SPECTRUM

This paper re-examines the evidence rejecting the expectations theory of the term structure. Weekly, monthly, and quarterly data on three- and six-month interest rates are employed for five subperiods—1910–1914, 1919–1933, 1934–1959, 1959–1978, and 1979–1989. Econometric techniques are used to correct standard errors for overlapping data and for heteroscedasticity. Findings indicate that the weekly and monthly data are consistent with a weak form of the expectations hypothesis in which the yield curve has substantial predictive power for short rates for each subperiod except 1934–1959 and 1979–1989. Results for the period before the founding of the Federal Reserve indicate that a strong version of the expectations hypothesis cannot be rejected in which the joint hypothesis of rational expectations and expectations theory is hypothesized. The use of cointegration tests and an error-correction model framework to determine whether short and long rates have a common stochastic trend indicates that long and short rates are cointegrated.     

Interest Rate Risk and Equity Values of Life Insurance Companies: A GARCH–M Model

The importance of managerial decisions related to interest‐sensitive cash flows has received considerable attention in the insurance literature. Consistent with the interest‐sensitive nature of insurer assets and liabilities, empirical research has shown that insurer insolvency is significantly related to interest rate volatility. We investigate the interest rate sensitivity of monthly stock returns of life insurers based on a generalized autoregressive conditionally heteroskedastic in the mean (GARCH–M) model. We examine three different portfolios (equally weighted, risk‐based, and size‐based) with binary variables to explicitly account for varying interest rate strategies adopted by the Federal Reserve System. Results based on data for the period 1975 through 2000 indicate that life insurer equity values are sensitive to long‐term interest rates and that interest sensitivity varies across subperiods and across risk‐based and size‐based portfolios. The results complement insolvency research that links insurer financial performance to changes in interest rates.     

Does prudential regulation contribute to effective measurement and management of interest rate risk? Evidence from Italian banks

This paper contributes to prior literature and to the current debate concerning recent revisions of the regulatory approach to measuring bank exposure to interest rate risk in the banking book by focusing on assessment of the appropriate amount of capital banks should set aside against this specific risk. We first discuss how banks might develop internal measurement systems to model changes in interest rates and measure their exposure to interest rate risk that are more refined and effective than are regulatory methodologies. We then develop a backtesting framework to test the consistency of methodology results with actual bank risk exposure. Using a representative sample of Italian banks between 2006 and 2013, our empirical analysis supports the need to improve the standardized shock currently enforced by the Basel Committee on Banking Supervision. It also provides useful insights for properly measuring the amount of capital to cover interest rate risk that is sufficient to ensure both financial system functioning and banking stability.     

基于货币因素的我国大宗商品价格波动影响机理——铜市场实证

基于长期与短期两个视角,采用2001~2013年的月度数据,通过构建协整检验、广义脉冲响应函数及方差分解等方法,考察了主要货币因素：货币供应量与利率对我国期铜价格的动态影响,结果表明：货币供应量、利率与期铜价格之间存在长期均衡关系;在短期内,货币供应量对期铜价格具有正向影响,而利率对期铜价格的影响总体为负,且利率的影响作用相对较大。