Search results for "Nominal interest rate"
showing 8 items of 8 documents
Nonlinear dynamics of interest rate and inflation
2004
According to several empirical studies, US inflation and nominal interest rates, as well as the real interest rate, can be described as unit root processes. These results imply that nominal interest rates and expected inflation do not move one-for-one in the long run, which is not consistent with the theoretical models. In this paper we introduce a nonlinear bivariate mixture autoregressive model that seems to fit quarterly US data (1952 Q1 – 2000 Q2) reasonably well. It is found that the three-month treasury bill rate and inflation share a common nonlinear component that explains a large part of their persistence. The real interest rate is devoid of this component, indicating one-for-one m…
Keep the faith in banking : New evidence for the effects of negative interest rates based on the case of Finnish cooperative banks
2021
This paper analyses the profitability of Finnish cooperative banks during the period of negative nominal interest rates. Contrary to expectations, the continuous decline in money market interest rates between 2009 and 2014, and the following negative rate era, did not have adverse effects on the profitability of banks at the beginning of negative interest rate period. Based on especially using a risk-adjusted measure for bank profitability, these results contrast with previous findings. In our findings, the increasing wholesale funding (WSF) ratio seems to be an important factor. However, after 2017 the banks have not been able to improve especially their risk-adjusted profitability so stro…
How does monetary policy respond to the dynamics of the shadow banking sector?
2020
We investigate the response of the central bank to the change in size of non-bank financial intermediaries. Using quarterly data for the U.S. over the period 1946:Q1-2016Q4, we find that when faced with an increase in the asset growth of the securities' brokers and dealers and the shadow banking sector, the monetary authority reacts by raising the short-term nominal interest rate. This response is stronger in the case of sharp variation in the size of the balance sheet of nonbank financial intermediaries. From a policy perspective, our study suggests that an extended version of the original Taylor rule - embedding both price stability and financial stability concerns – provides a good chara…
Some new results on interest rate rules in EMU and in the US
2000
Abstract This paper offers two new results on interest rate rules. First, we show that the empirical evidence from 1970 onwards for the US is compatible with a Taylor rule when we consider the possibility of changes in the inflation target and in the real interest rate. Second, recursive estimates of a forward-looking version of the Taylor rule for EMU confirm an increasing weight for inflation in the area, possibly as a consequence of the EMS, and, furthermore, a convergence in the nineties to the German value observed for the whole period. This process has coincided with an important reduction in the deviation of inflation across EMU countries. The results also show that credibility probl…
A Small Forward-Looking Macroeconomic Model for EMU
2001
In this paper we estimate a small forward-looking macroeconomic model for EMU which allows us to analyze the transmission mechanism of the monetary policy implemented by the European Central Bank through an interest rate rule that stabilizes inflation and output. The estimation of this model, which comprises forward-looking versions of the IS and the Phillips curves as well as the interest rate rule, is conducted by GMM using quarterly data from 1986 to 2000. We find that this simple model matches the dynamic properties of the output gap, inflation and the interest rate in EMU quite accurately. We also perform several exercises that show the response of output, inflation and interest rates …
Intertemporal substitution and the liquidity effect in a sticky price model
2002
Abstract The liquidity effect, defined as a decrease in nominal interest rates in response to a monetary expansion, is a major stylized fact of the business cycle. This paper first confirms that, with separable preferences, a low degree of intertemporal substitution in consumption is a necessary condition for the existence of the liquidity effect. In contrast to this result, in a model with non-separable preferences and capital accumulation it takes an implausibly high elasticity of intertemporal substitution to produce a liquidity effect. The robustness of these results to alternative degrees of nominal rigidities, capital adjustment costs and stochastic monetary processes is also analysed…
Is the Fisher effect non-linear? some evidence for Spain, 1963–2002
2005
In this paper the role of non-linearities in the relationship between nominal interest rates and inflation is examined, in order to shed some additional light on the mostly unfavourable evidence on the presence of a full Fisher effect. The analysis is applied to the case of Spain for the period 1963–2002, which allows previous results on the subject to be re-examined and extended. The empirical methodology makes use of recent developments on threshold cointegration, so that cointegration between a pair of variables should be expected only once a certain threshold was reached.
Deciphering the Macroeconomic Effects of Internal Devaluations in a Monetary Union
2020
We study the macroeconomic effects of internal devaluations undertaken by a periphery of countries belonging to a monetary union. We find that internal devaluations have large and positive output effects in the long run. Through an expectations channel, most of these effects carry over to the short run. Internal devaluations focused on goods markets reforms are generally more powerful in stimulating growth than reforms aimed at moderating wages, but the latter are less deflationary. For a monetary union with a periphery the size of the euro area's, the countries at the periphery benefit from internal devaluations even at the zero lower bound (ZLB) of the nominal interest rate. Nevertheless,…