The impact of foreign interest rates on the economy: The role of the exchange rate regime

It is often argued that many economies are affected by conditions in foreign countries. This paper explores the connection between interest rates in major industrial countries and annual real output growth in other countries. The results show that high foreign interest rates have a contractionary effect on annual real GDP growth in the domestic economy, but that this effect is centered on countries with fixed exchange rates. The paper then examines the potential channels through which major-country interest rates affect other economies. The effect of foreign interest rates on domestic interest rates is the most likely channel when compared with other possibilities, such as a trade effect.     

The Long Wave Revisited

A key question for businesses and investors is whether the low inflation and low long-term interest rates we are now experiencing are a business cycle or a longer-term phenomenon. This paper updates and expands my earlier study on long waves [Synnott 1995]. Using this analytical perspective, I conclude that it is likely that high-grade, long-term bond yields will remain low, especially in real terms, for several years. Low long-term real interest rates for an extended period give the United States a major opportunity for investment and growth, as in previous long-term cycles, provided that appropriate government policies and plans are in place.     

Altschuldenentlastung der Bundesländer: Verteilungswirkungen ausgewählter Vorschläge

Due to large public deficits in the past, many German states face high interest payments in their budgets today. Therefore, a restructuring of this outstanding debt will be a major topic in forthcoming negotiations on the future design of the fiscal equalisation scheme. This article presents some proposals that are currently being discussed and calculates their redistributional effects between the federal government and the states. It is shown that all models would lead to a significantly higher burden for the federal budget. The only way to afford this is either to increase the value added tax rates or to keep the so-called solidarity surcharge that was originally introduced to finance transfers to East Germany.     

Monetary Policy,Taylor’s Rule and Instability

We analyse the dynamic behaviour of an economy where the central bank (CB) sets interest rates according to a Taylor‐type policy rule. A simple model for a closed and instability‐prone economy is constructed and subjected to formal dynamical analysis and numerical simulation. It is shown that a requirement for local stability is that the two response coefficients in the policy rule be positive. Similarly, it is shown that raising the response coefficient of the output gap increases the likeliness of the economy being stable, whereas raising the response coefficient of the inflation gap has an uncertain and probably negligible effect on local stability. Self‐sustained oscillations may arise for certain parameter values. Policy mistakes in the estimation of the long‐run equilibrium real interest rate or potential real GDP may prevent the CB from achieving its inflation target. A suggestion for enhancing the stabilization capacity of Taylor‐type policy rules in the context of the model presented is made.     

On the Characterisation of the World Real Interest Rate

This paper characterises the world real interest rate as a common trend in real interest rates in Germany, Japan, and the United States even if there is scepticism in the existence of the world real interest. In theoretical terms, real interest parity is based on the presumed validity of uncovered interest parity and purchasing power parity, but the empirical evidence of these parity conditions is not strong and thus the presence of the world real interest rate. The significance of this paper is, therefore, to visualise the current level of international economic integration by characterising the approximate world real interest rate as a single common trend, taking full advantage of the fact that real interest rates in three large open economies have been moving together sharing a common component even if their levels are distinctively different. This single common trend has desirable properties as the world real interest rate. First, it is a parsimonious and monotonically increasing function of the real interest rates in three large open economies that can be world price or interest rate maker, in contrast with small open economies. Second, it is moving together with national real interest rates one for one. Hence, the deviations from the world rate are temporary because common trend represents the common driving force of national rates over the long run period. Third, it can explain as high a proportion as possible of the variances of national rates.     

Regimes of Interest Rates,Income Shares,Savings and Investment: A Kaleckian Model and Empirical Estimations for some Advanced OECD Economies

The first part of the paper deals with the effects of an exogenous variation in the monetary interest rate on the real equilibrium position of the economic system in a Kaleckian effective demand model. Different regimes of accumulation are derived and it is shown that a negative relation between the interest rate and the equilibrium rates of capacity utilization, accumulation and profit usually expected in post‐Keynesian theory only exists under special conditions. In the second part the model is applied to the data of some major OECD countries, the relevant coefficients are estimated and the relevance for an explanation of the course of GDP and capital stock growth since the early 1960s is discussed.     

The Decline in the Natural Rate of Interest

With the Federal Reserve widely expected to begin normalization of monetary policy in the wake of the Great Recession—perhaps in 2015—an important question for public policy and private-sector planning is what the “new normal” for interest rates is likely to be. In particular, are real interest rates likely to be lower in the future than in recent decades? An investigation through the use of the Kalman filter shows that the natural rate of interest—the real federal funds rate consistent with the economy operating at its full potential—has declined since 1980, especially after the Great Recession. This will have important implications for monetary policy and for the private sector, including recognition that the natural rate of interest is not fixed.     

A Vicious Cycle of Manias,Crises and Asymmetric Policy Responses – An Overinvestment View

Over the past three decades, we find that asymmetric policy responses heavily contributed to manias and bursting bubbles that eventually trapped the major industrial economies into near zero short‐term interest rates with rapidly rising public indebtedness. The article uses the endogenous business cycle theories of Wicksell, Mises, Schumpeter, Hayek and Minsky to show how ostensible counter‐cyclical monetary policies are asymmetric, as central banks are less willing to raise interest rates in booms than cut them when bubbles collapse. After interest rates have fallen towards zero, fiscal policy is called on which sooner or later becomes bounded by extraordinary debt to GDP ratios. Central banks hesitate to raise interest rates even in the face of a partial economic recovery because the cost of public debt service would become prohibitive. The economies then languish at very low interest rates that encourage low productivity real investments and a continual threat of bubbles in asset and raw material markets. This makes them unable to deal with further macroeconomic shocks.     

浮动汇率制国家满足实际利率平价假说吗——区分贸易品和非贸易品的检验及对中国的启示

本文分别使用总产品价格、贸易品价格和非贸易品价格来构建实际利率,选取了实行浮动汇率制的八个工业化国家作为样本,通过检验两国间实际利率差序列是否平稳来验证实际利率平价(RIP)假说是否成立.实证结果显示,使用贸易品价格构建实际利率时,实际利率平价假说在大多数情况下能被证实,而使用其他两种价格构建实际利率时,该假说在多数情况下被证伪.这样.西方发达国家财政政策和货币政策失效的原因可在一定程度上得到解释,同时,我们的结论也可为中国未来金融改革提供有益的启示.     

中国汇率、利率、物价等相关关系研究

在经济运行过程中汇率、利率和物价三者关系紧密、相互影响,对经济的运行具有重大的意义。汇率的低估会引发物价上升,而实际汇率又由物价所决定。利率的变化对即期和远期的汇率也会产生重大的影响。我国的通货膨胀不仅应当通过抬高利率来抑制,更重要的应该通过对人民币正确估值,合理变动人民币汇率来解决。     

Is there an optimal crawl?

This paper shows that optimal exchange rate policy can be defined in terms of either a long-run secular policy or a short-run stabilization policy. The rate of crawl which maximizes real per capita consumption is shown to often differ from the exchange rate movements produced under fixed or floating exchange rates. And the optimal program for dealing with short-run speculative capital flows will involve both discrete and gradual exchange rate changes. It is also argued that domestic monetary policy and exchange rate policy are not independent instruments.     

CENTRAL GOVERNMENT BUDGET DEFICITS AND EX ANTE REAL LONG TERM INTEREST RATES IN ITALY: AN EMPIRICAL NOTE FOR 1955-1989

This paper empirically investigates the impact of central government budget deficits upon interest rates in Italy. The period studied runs from 1955 to 1989, and annual data are used. The interest rate measure is the ex ante real rate of interest. It is found, using an instrumental variables technique to control for the endogeneity of the budget deficit, that the budget deficit raises the ex ante real interest rate in Italy.     

Monetary policy and the daily behavior of interest rates

It is possible that previous research has failed to detect significant variation in the ex-ante real interest rate because the Federal Reserve follows a policy designed to stabilize the real rate. If the Fed is successful, there will be little month-to-month variation in the real rate. Nonetheless, research to date has relied on monthly or quarterly data. This paper presents the results of new tests that use daily data in an attempt to detect short-term variation in the ex-ante real rate. Though the tests reveal that the real rate is not constant, most of the detected variation is related to reserve settlement on Wednesday.     

Monetary Conditions in the Philippines: An Assessment from DOLS and ARDL

This article examines key transmission mechanism channels for the Philippines over 1983:1-2010:4 using ARDL and DOLS. Results show evidence of cointegration between the real Gross Domestic Product, short- and long interest rates, exchange rate, claims on private sectors, and share prices. Relatively small coefficient of share price implies the existence of insider trading and the lack of local liquidity and limited private participation. The sign of interest rates implies the domination of the money market by the government securities. The economy may be exposed to the risk of recession when BSP increases the short rate continuously as the long rate will react conversely.     

Reswitching,primary inputs and the Heckscher-Ohlin-Samuelson theory of trade

The 2× 2 × 2 Heckscher-Ohlin-Samuelson model of trade is examined under all the usual assumptions, except that a positive rate of interest is assumed. The factor-price-equalization and Stolper-Samuelson theorems are shown to be unaffected by the positive interest rate. The H-O-S theorem on the pattern of trade still holds in its ‘quantity’ form but is shown to be invalid in its ‘price’ form. Consequently trade need not ‘harm’ a country's scarce factor. It is to be expected that, in general, international equilibrium will not be unique.     

Die Transmission über den Zinskanal: von der Geldpolitik zur Kreditnachfrage

Through more favourable funding costs for commercial banks, the central bank can send expansionary monetary stimuli into the real economy to boost the demand for credit. In this regard, one of the most important channels for the transmission of monetary policy is the interest rate channel. This contribution analyses the effectiveness of the interest rate channel in the eurozone. It comes to the conclusion that the transmission of the expansive monetary stimulus into the banking sector works well, but that the transmission of the stimulus to the real economy is partly inhibited. The main factors that dampen credit demand are higher real interest rates as well as low growth and higher indebtedness, especially in the eurozone’s peripheral countries.     

房地产泡沫的虚拟经济决定论及其实证检验

现代房地产具有虚拟资产特征。对房地产泡沫的虚拟经济决定论的实证检验包括:房地产价格与货币政策、利率政策、信贷波动及股价各自之间的相关检验。结果发现,货币供应量、利率等虚拟经济变量对房地产价格都存在显著的影响。整体而言,来自中国的实证分析初步支持了房地产泡沫的货币推动假说,房地产泡沫是一种货币现象的判断。     

MODELING STABILIZATION POLICIES IN A FINANCIALLY UNSTABLE ECONOMY

A non‐linear macrodynamic model is presented here to study possible stabilization policies in a financially unstable economy. Three policy rules will be considered, namely the interest rate rule (also called Taylor rule), the money supply rule and the fiscal policy rule. It will be shown that the interest rate rule can be used to stabilize a financially unstable economy on a ‘desired’ growth path. However, when the economy falls into a ‘liquidity trap’, the interest rate rule is ineffective, and therefore the fiscal policy rule should be employed. We also find a rule of money supply that can deal with the problem of government debt while the rest of the economy can still be stabilized on the ‘desired’ growth path.     

A Reconsideration of Rent‐to‐Own

Rent‐to‐own agreements (RTO) are traditionally seen as disguised installment contracts imposed on uninformed consumers at usurious interest rates. After the flaws and omissions in these interest rate calculations are addressed, the implied annual percentage rates (APRs) remain extraordinarily high. It is shown that alternatives to RTO, such as layaway and long‐term rental, yield comparable APRs. The appeal of rent‐to‐own is then attributed to its structure that includes an initial pure rental phase of high value to persons in volatile financial and/or personal situations followed by an installment phase. Should these situations be resolved, the consumer exercises an imbedded option to acquire a perhaps otherwise unobtainable installment agreement at a competitive interest rate.     

Real and Financial Sector Interaction Under Liberalization in an Open Developing Economy

A short‐run model incorporates instantaneous portfolio equilibrium with macroeconomic flows to clarify the structure of real–financial sector interactions. If equity and foreign exchange markets are introduced in structuralist theories of asset markets in developing countries, the key result that a fall in money supply raises the rate of inflation now holds only under special conditions on partial derivatives. But there is a tendency for interest rates to rise and for fluctuations in asset prices. Fuller integration of asset markets moderates these fluctuations. Outcomes are stable in spite of the generalized complementarity distinguishing equity markets from loan markets. Expectations play a major role. Implications for policy are to link domestic interest rates to foreign, remove artificial barriers to market integration, and stimulate demand as well as supply.