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1 – 10 of over 85000Michael Chin, Ferre De Graeve, Thomai Filippeli and Konstantinos Theodoridis
Long-term interest rates of small open economies (SOE) correlate strongly with the USA long-term rate. Can central banks in those countries decouple from the United States? An…
Abstract
Long-term interest rates of small open economies (SOE) correlate strongly with the USA long-term rate. Can central banks in those countries decouple from the United States? An estimated Dynamic Stochastic General Equilibrium (DSGE) model for the UK (vis-á-vis the USA) establishes three structural empirical results: (1) Comovement arises due to nominal fluctuations, not through real rates or term premia; (2) the cause of comovement is the central bank of the SOE accommodating foreign inflation trends, rather than systematically curbing them; and (3) SOE may find themselves much more affected by changes in USA inflation trends than the United States itself. All three results are shown to be intuitive and backed by off-model evidence.
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F.M. Wilkes, J.M. Samuels and S.M. Greenfield
Investment in manufacturing is important to sustained UK economic recovery, quality of life and national economic standing. Considers results from a survey of UK manufacturers on…
Abstract
Investment in manufacturing is important to sustained UK economic recovery, quality of life and national economic standing. Considers results from a survey of UK manufacturers on influences on capital investment, the appraisal methods used and the impact of recent changes, particularly in interest rates. Compares results with the Bank of England and CBI surveys and studies of appraisal methodology. Outcomes include the finding that UK interest rates are not seen by most manufacturers as an important influence on their investment decisions. Examines the effects of factors such as inflation, taxation and the UK and EU economic outlooks. Responses confirm near universal usage of the payback method in financial appraisals and widespread use of multiple criteria. Looks at UK investment in advanced manufacturing technology (AMT) and what allowances are made for intangible benefits. Considers a number of aspects of short‐ termism and concludes that the Cadbury recommendations are unlikely to have a major impact.
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Reveals that Ireland has experienced six major changes in exchange rate regimes over the period 1797 to today. Provides a historical perspective on this experience. Indicates that…
Abstract
Reveals that Ireland has experienced six major changes in exchange rate regimes over the period 1797 to today. Provides a historical perspective on this experience. Indicates that Irish nominal variables have been affected by the exchange rate regime and that membership of exchange rate regimes has both affected and has been used to justify policies followed by the Irish government. States that, structurally, the Irish economy has undergone dramatic change, one of the reasons being government policy, which has altered the exchange rate options open to Ireland. Notes however, that continued labour market and trade linkages with the UK have implications both for the transition and membership of a future European Monetary Union.Johansen (1988) cointegration testing procedure and error correction modelling on annual data for the period 1958‐1990. These modern techniques produce empirical results which do not support the public capital hypothesis. Suggests several reasons to explain this outcome, and outlines possible policy implications.
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The purpose of this note is to examine the impact of US money‐supply announcements on United Kingdom interest rates using weekly data over the period 1977 to 1982. We find some…
Abstract
The purpose of this note is to examine the impact of US money‐supply announcements on United Kingdom interest rates using weekly data over the period 1977 to 1982. We find some evidence for the proposition that surprise increases in the US money supply increased UK interest rates over our sample period.
Rosylin Mohd Yusof, Mejda Bahlous and Roszaini Haniffa
This paper aims to contribute to the banking and housing market literature by proposing an alternative measure of rate of return for Islamic banks that is based on the rental rate…
Abstract
Purpose
This paper aims to contribute to the banking and housing market literature by proposing an alternative measure of rate of return for Islamic banks that is based on the rental rate of the property. This alternative Islamic mortgage pricing mechanism could be adopted by Islamic banks as a replacement for mortgage rates if it is found to be independent from any form of interest rates as required by Islamic law.
Design/methodology/approach
By investigating the short run and long run dynamics between rental price index (RPI) and the proposed Islamic Rental Rate (RR-I) and, three selected macroeconomic indicators in the UK via autoregressive distributed lag model, the authors examine the link between RPI, RR-I and the real economy.
Findings
The findings provide evidence that while RPI in the UK is significantly related to three leading macroeconomic variables, namely, gross domestic product (GDP), real effective exchange rate and interest rates measures, while RR-I is only impacted by changes in GDP. More importantly, the authors show that there is no short or long run dynamics between the rental rate and any form of interest rates.
Research limitations/implications
This paper did not attempt to investigate the impact of the physical attributes of the rental property to formalize the model describing the relationship between RPI and RR-I. Also, other macroeconomic factors like household income growth, risk, house value growth rate and taxation could be included in future models.
Practical implications
As Rental Rate is not linked to the macroeconomic determinants, it is therefore more stable, resilient and sustainable and, at the same time, making the financing less risky for both parties, as they are less susceptible to economic vulnerabilities.
Social implications
Some calculations incorporating the proposed RR-I can also be extended to the pricing of products based on other contracts such as Tawarruq, Bai Bithaman Ajil or even Murabahah for a fairer and just pricing to both the banks and customers.
Originality/value
The results suggest that Islamic banks should consider incorporating the proposed rental rate (RR-I) when pricing their home financing products, as this will lead to less dependence on interest rates for benchmarking. In addition, using the proposed rental rate (RR-I) reduces the exposure to the subjective evaluation by property valuators and speculative macroeconomic elements.
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“New measures” to aid monetary control introduced by the Bank of England in August 1981 are assessed with reference to the monetary base and “flow of funds” models of banking…
Abstract
“New measures” to aid monetary control introduced by the Bank of England in August 1981 are assessed with reference to the monetary base and “flow of funds” models of banking behaviour. Both models are found to be deficient in analysing the supply of “broad” money. However, theories of the banking firm highlight some problems in controlling a broad monetary aggregate. The “new measures” are viewed as a cautious approach to achieve greater flexibility in short‐term interest rates and to minimise the scope for disintermediation and hence are an improvement on previous arrangements for monetary control.
There is a debate on the excess volatility of long‐term bond yields. It is found that whether long‐term bond yields are excessively volatile or excessively smooth depends…
Abstract
There is a debate on the excess volatility of long‐term bond yields. It is found that whether long‐term bond yields are excessively volatile or excessively smooth depends critically on the knowledge of the long‐run properties of the short‐term interest rate process. Uses a span of 200 years of data on interest rates and finds that the short rates from the USA and the UK are characterized by stationarity after the tests for unit root have accounted for structural breaks. Volatility tests reveal for the whole and sub‐sample periods that the long rates are excessively smooth.
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Matt Bickerton and Stephen Louis Gruneberg
The aim of this research is to answer whether or not wholesale interest rates, such as the London Interbank Offered Rate (LIBOR), can be used as an effective policy instrument to…
Abstract
Purpose
The aim of this research is to answer whether or not wholesale interest rates, such as the London Interbank Offered Rate (LIBOR), can be used as an effective policy instrument to influence construction output. Developers and contractors borrow to finance construction and are charged retail interest rates, determined by the lending bank. The study investigated the relationship between LIBOR and construction industry output.
Design/methodology/approach
The study identified two time series, LIBOR and annual construction output and a number of regressions were run using the first differences to observe whether a change in LIBOR alone had a significant influence on construction output lagged by one to four years.
Findings
No significant relationship was found between changes in LIBOR and the annual change in construction output, regardless of the number of years lagged.
Social implications
The policy implication of this research shows that control of demand for construction by government using wholesale interest rates is unlikely to succeed. Banks' lending to developers depends on other factors, such as retail interest rates, risk management and expectations.
Originality/value
The value of this research is that it supports the view that government policy needs to focus on stimulating construction demand, using real projects rather than monetary policies, such as interest rate manipulation.
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The advent of the European single currency and the UK’s decision not to participate in the Euro start‐up has placed the UK interest rate policy in a pivotal position. However, the…
Abstract
The advent of the European single currency and the UK’s decision not to participate in the Euro start‐up has placed the UK interest rate policy in a pivotal position. However, the competing fundamental positions are unclear with irreconcilable targets, a regime change or new paradigm, and supported by a poor forecasting record. In this paper an alternative approach is considered, dispensing with fundamental ideology. Forward looking interest rates are based on pattern recognition and congestion. This approach assumes that the data series can be interpreted as a memory pattern using past performance. Attention is focused on the votes of constituent members of the Bank of England’s Monetary Policy Committee. The point and figure chart is able to identify structural breaks in the data, thus only relevant time periods need be considered. Finally, the results become a leading indicator for competing fundamental models.
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