The relationship between budget deficit and interest rates in South Africa: some econometric results

This article investigates the budget deficit–interest rate relationships in South Africa, using two econometric methods: the London School and the Granger‐causality methods. The results suggest that budget deficits have no effect on interest rates in South Africa. The causality results reinforce this finding by indicating that budget deficit and interest rates in this country are independent.     

The relationship between U.S. and eurodollar interest rates: Evidence from the futures market

The Relationship between U.S. and Eurodollar Interest Rates: Evidence from the Futures Market. — This paper analyzes the lead/lag relationship in the Granger-cause sense between U.S. and Eurodollar interest rates in futures contracts. It shows that yields on U.S. Treasury bill and Eurodollar futures are cointegrated with the TED spread as the cointegrating vector for the period January 1987–July 1993. The error correction model indicates that the U.S. market leads the Eurodollar market. However, the presence of this unidirectional causality does not improve the forecasting of Eurodollar yields. Other evidence given in the paper suggests that the hypothesis of contemporaneous relationships, at least on daily base, is not rejected.     

Dual-track interest rates and capital misallocation

The control-track interest rate and the market-track interest rate constitute China's dual-track interest rates. A theoretical model of dual-track interest rates and financial frictions is studied. In the model, bank loans are provided to state-owned enterprises with the control-track interest rate, private enterprises resort to shadow banking with the market-track interest rate. The interest rate wedge between these two interest rates distorts capital allocation, even driving a sector out of production. Full interest rate liberalization which eliminates the interest rate wedge alleviates cross-sector capital misallocation. However, the net effect on aggregate TFP is ambiguous due to the within-sector effect. Under calibrated parameters, full interest rate liberalization improves aggregate TFP moderately, unless the financial reform aimed to have SOEs and POEs face the same degree of financial frictions is also implemented.     

Demographics and interest rates in Asia

Demographic developments have been regarded as one important cause of the long-term movement in global interest rates. This paper provides empirical evidence of the relationship between demographics and interest rates over a wide sample of advanced and emerging market economies. It also finds that capital account openness limits the direct sensitivity of a country's interest rates to its own demographics. The results suggest that future demographic developments will continue to apply downward pressure on the interest rates in Asia which foresees a rapid aging.     

Real interest rates and the cost of capital

The real interest rate and the equity risk premium are criticaleconomic parameters that influence a wide range of economicdecisions. This paper considers the problems involved in estimatingexpected real interest rates and the equity risk premium, andhence the overall cost of capital. Using UK data, it suggestsreasons why estimates based on historical returns may be misleading,and discusses alternative approaches to estimating the costof capital.     

Real interest rates and macroeconomic activity

While standard discussions of the transmission mechanism ofmonetary policy tend to assume a strong and negative link betweenreal interest rates and real macroeconomic activity, and thisappears to some extent to be borne out by simulation of large-scalemacroeconometric models, the empirical evidence suggests thatthe link between real interest rates and macroeconomic aggregatessuch as consumption and investment is, in fact, somewhat tenuous.The weak link between interest rates and aggregate consumptionmay be explained at a theoretical level, while the apparentlyweak link between interest rates and investment is more puzzling,although it may be related to neglect of issues such as uncertaintyand the irreversibility of investment in empirical studies.Similarly, evidence on the link between real interest ratesand economic growth is mixed, and this may be related to non-linearitiesin the relationship. The survey highlights the need for furtherresearch in this area.     

Seasonal variation in interest rates

Any remaining errors are the responsibility of the author.     

The relation between international capital flows and interest rates: A theoretical analysis

Summary Commonly, macro trade models which analyze the effects of governmental policies assumed that the rate of the international flow of capital is dependent upon international interest rates. This paper demonstrates that such a specification is inconsistent with the assumption of arbitrage in securities internationally.This is demonstrated first within a conventional static macro trade model, second within a class of dynamic models where short-run capital flows, but not total capital flows, depend upon interest rate levels, and, finally, within a general portfolio macro trade framework.We recommend the assumption of international arbitrage behavior.The authors are respectively Visiting Associate Professor of Economics at University of California at Santa Barbara, California and Professor of Economics at Wayne State University. We wish to gratefully acknowledge the suggestions and criticisms of Dr. S. K. Kuipers.     

养老保险基金:问题与出路

利率市场化是我国金融业发展的客观要求 ,但在现实的政治经济社会条件约束下 ,利率市场化面临着较大的金融风险。本文在分析利率市场化的成本和收益的基础上 ,对如何降低我国利率市场化的成本 ,提出了若干对策建议。     

World public debt and real interest rates

Real interest rates appear to have risen in virtually all industrializedcountries in the 1980s and 1990s relative to levels that prevailedin earlier decades. There is concern that this may reflect higherpublic debt, which is crowding out private-sector activity.There has also been increasing international capital marketintegration, implying that interest rates in any country maybe sensitive to global fiscal developments. This paper estimatesthe effects of such fiscal developments on real interest ratesin nine industrial countries. The results imply that the increasein OECD-wide government debt since the late 1970s was a majorfactor in the rise in real interest rates.     

Arbitrage and interest rates on currency baskets

Zusammenfassung Arbitrage und Zinsen auf W?hrungsk?rbe. - In diesem Aufsatz wird mit Hilfe der Arbitragetheorie die Zinsformel für Korbw?hrungen überprüft. Der Ansatz basiert auf der Beobachtung, da\ W?hrungsk?rbe eigentlich abgeleitete Verm?genswerte sind, deren Eigenschaften ausschlie\lich durch die Eigenschaften ihrer Mitgliedsw?hrungen erkl?rt werden sollten. Es wird gezeigt, da\ die üblicherweise angewandte Formel für die Berechnung der Zinss?tze für die Korbw?hrung — das gewogene arithmetische Mittel aus den Zinss?tzen der Mitgliedsw?hrungen — erstens mit der vollst?ndigen Arbitrage zwischen den W?hrungen nicht konsistent ist, zweitens zu hoheren Zinssatzen fiihrt, als sich ergeben wiirde, wenn bei der Berechnung Arbitragepreise zugrundegelegt wiirden, und drittens eine Terminstruktur der Zinssatze voraussetzt, die nicht konsistent ist mit einer perfekten Terminarbitrage auf den Finanzmarkten der Korbwahrung und der Mitgliedswahrungen.

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Resumen Arbitraje y tasas de interés sobre canastas de monedas. - En este trabajo se utiliza un enfoque teórico de arbitraje para examinar la fórmula de tasa de interés para canastas de monedas. El enfoque esta basado en la observatión de que las canastas de monedas son intn’nsecamente activos derivados cuyas propiedades deben’an explicarse a partir de las propiedades de las monedas participantes. Se demuestra que la fórmula comiínmente empleada para calcular tasas de interés para canastas de monedas- el promedio arittmético ponderado de las tasas de interés de las monedas participantes - 1) no es consistente con un arbitraje perfecto entre las monedas, 2) arroja tasas de interés más altas que las calculadas con la fórmula derivada de precios de arbitraje e 3) implica una estructura temporal de tasas de interés que no es consistente con un arbitraje intertemporal perfecto en los mercados de activos correspondientes a la canasta de monedas y a las monedas participantes.

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Résumé Arbitrage et taux d’intéret pour des monnaies de panier. - Cet article applique une approche théorique d’arbitrage pour réexaminer la formule du taux d’intéret pour des monnaies de panier. L’approche est fondee sur l’observation que des telles monnaies sont des valeurs actives intrinsequement dérivées dont les caracteristiques doivent etre expliquées exclusivement par celles des monnaies membres. II est demontré que la formule normalement appliquée pour calculer les taux d’intéret des monnaies de panier - la moyenne arithmétique pondérée des taux d’intéret des monnaies membres - (i) n’est pas consistante avec ’arbitrage parfaite entre des monnaies, (if) mène aux taux d’intéret plus hauts que ceux qui sont calculés par un arbitragiste, et (hi) implique une structure de terme des taux d’intéret qui n’est pas consistante avec l’arbitrage parfaite intertemporale sur les marches des valeurs actives des monnaies de panier et ses monnaies membres.

     

On interest rates in Belgium and the Netherlands: A comparative analysis of interest rate developments and financial innovations, 1980–1984

Summary Using the method op principal components, this paper examines the question of to what extent independent variations exist among observed market interest rates in Belgium and the Netherlands, and presents a speculative reflection on the main findings. The data employed are monthly observations on interest rates on the capital and the money market as well as on the Euro-money market. The sample period is 1980–1984. The analysis shows that the first principal component, which accounts for at least 80% of total variation, can be identified as the true rate of interest. The second principal component is interpreted as maturity in Belgium and risk in the Netherlands while the third principal component in Belgium reflects risk and international dependence but in the Netherlands the premium for inflation. Another conclusion is that the usual distinction between the money market and the capital market does not show up in the Dutch data but does in the Belgian.     

The linkage of interest rates within the EMS

The Linkage of Interest Rates within the EMS. — The paper explores the linkage between interest rates in Germany and the United States with those on other currencies within the Exchange Rate Mechanism (ERM) of the European Monetary System. Monthly data on money market interest rates and rolling window cointegration techniques are used. The principal findings are that during the early part of the sample period (1979–1995), there is widespread cointegration between both US and German interest rates and those on other currencies in the ERM; but during the later part of the sample, this “worldwide” linkage disintegrates, cointegration between German and other ERM interest rates strengthening whilst that with the US disappears.     

The assessment: real interest rates

The assessment attempts to provide a broad explanation of thepost-war pattern of real interest rates, drawing on the theoreticaland empirical papers in this issue of the >Oxford Review. Itis argued that the concept of the 'neutral' rate of interest,at which the economy grows at its productive potential withoutchanges in the inflation rate, provides a helpful frameworkfor understanding these developments. The neutral rate providesa bridge between, on the one hand, the fundamental determinantsof real returns, as suggested by models of economic growth and,on the other hand, the functioning of asset markets and theoperating procedures of central banks. The change in policystance towards tighter money at the beginning of the 1980s isseen as having had long-lasting effects, especially when accountis taken of the fiscal stance.