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Book part
Publication date: 2 September 2019

B. Janakiraman

Low interest rates around the world due to adaptive monetary policy regulations for some time a source of concern for the banking sector and depositors of the bank. In this…

Abstract

Low interest rates around the world due to adaptive monetary policy regulations for some time a source of concern for the banking sector and depositors of the bank. In this environment, interest rates have raised concerns about nominal deposit interest rates which cannot be lowered below zero without destroying bank customers. Bank loans are becoming less vulnerable to lower interest rates on deposits approaching zero, indicating that the financial channel is weakened when interest rates are close to zero. Demographic pressures associated with longer life expectancy, China's gradual integration into global financial markets and changes in supply and asset requirements are attributed as reasons for low interest rates. Volatility of CPI inflation, interest rates on bank deposits attracting income tax and discontented depositors due to lower rates are cited as reasons for the suffering of bank depositors. This chapter thus discusses the impact of negative rate on economic growth and bank customers besides discussing the future trends of negative interest rates.

Details

The Impacts of Monetary Policy in the 21st Century: Perspectives from Emerging Economies
Type: Book
ISBN: 978-1-78973-319-8

Keywords

Article
Publication date: 1 August 1999

Osamah Al‐Khazali

Vector‐autoregression (VAR), integration, and cointegration models are used to investigate the causal relations, dynamic interaction, and a common trend between interest rates and…

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Abstract

Vector‐autoregression (VAR), integration, and cointegration models are used to investigate the causal relations, dynamic interaction, and a common trend between interest rates and inflation in nine countries in the Pacific‐Basin. This paper finds that for all countries, short‐ and long‐term interest rates and the spread between the long‐term interest rates and inflation are non‐stationary I (1) processes. The nominal interest rates and inflation are not co‐integrated. In addition to this study’s inability to find a unidirectional causality between inflation and interest rates, when the VAR model is used, it also fails to find a consistent positive response either of inflation to shocks in interest rates or of interest rates to shocks in inflation in most of the countries studied. The VAR model results are consistent with the cointegration tests’ results, that is, nominal interest rates are poor predictors for future inflation in the Pacific‐Basin countries.

Details

Management Decision, vol. 37 no. 6
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 25 November 2013

Takayasu Ito

This paper aims to analyze Islamic rates of return, conventional interest rates in the Malaysian deposit markets, and Kuala Lumpur Interbank Offered Rate (KLIBOR) rates in the…

2372

Abstract

Purpose

This paper aims to analyze Islamic rates of return, conventional interest rates in the Malaysian deposit markets, and Kuala Lumpur Interbank Offered Rate (KLIBOR) rates in the short-term money market from the view point of co-movement and transmission.

Design/methodology/approach

The non-stationary time series models such as cointegration and Granger causality tests are applied to analyze the daily data.

Findings

Islamic rates of return and conventional interest rates co-move in the Malaysian deposit market. The Islamic rates of return propel conventional interest rates in the three-, six-, and 12-month maturities. Islamic rates of return and conventional interest rates form a short-term money market with KLIBOR rates.

Research limitations/implications

The author analyzes econometrically the sample period from May 16, 2005 to January 12, 2012. This paper concentrates on the period after the development of Islamic banking in Malaysia.

Practical implications

Islamic and conventional deposit markets are competitive in Malaysia; in particular, the competition in the one-month deposit market is very keen. Islamic rates of return have more impact on the formation of short-term interest rates than conventional interest rates.

Originality/value

This paper makes three contributions to the related literatures. First, it uses daily data in the maturities of one month, three months, six months and 12 months for its analyses. Second, it uses the Granger causality method of Toda and Yamamoto to avoid the issue of the non-stationarity of the data. The results of the Granger causality tests in this paper are different from related literatures. Third, this paper focuses on the relationship of KLIBOR rates and Islamic rates of return, and of KLIBOR rates and conventional interest rates.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 6 no. 4
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 7 August 2007

Stuart Hyde

This study seeks to investigate the sensitivity of stock returns at the industry level to market, exchange rate and interest rate shocks in the four major European economies…

7287

Abstract

Purpose

This study seeks to investigate the sensitivity of stock returns at the industry level to market, exchange rate and interest rate shocks in the four major European economies: France, Germany, Italy, and the UK.

Design/methodology/approach

The paper utilises the methodology of Campbell and Mei (1993) to decompose systematic risks into components attributable to news about future dividends (cash flows), real interest rates and excess returns.

Findings

In addition to significant market risk, the paper finds significant levels of exposure to exchange rate risk in industries in all four markets. Significant levels of interest rate risk are only identified in Germany and France. All three sources of risk contain significant information about future cash flows and excess returns.

Research limitations/implications

Future research could investigate the extent of exposure in other markets, or investigate whether the findings change at the firm level. Additionally it could be investigated whether recent asset pricing work such as Campbell and Vuolteenaho (2004) can be utilised to investigate this research problem.

Practical implications

The paper identifies which industry portfolios have significant exposures and decomposes these risks. This information is relevant for investors and portfolio managers, as well as financial management within the firm.

Originality/value

The paper utilises an alternative econometric methodology to investigate the extent of exposure to exchange rate and interest risks in industrial portfolios in four European markets.

Details

Managerial Finance, vol. 33 no. 9
Type: Research Article
ISSN: 0307-4358

Keywords

Open Access
Article
Publication date: 12 December 2023

Robert Mwanyepedza and Syden Mishi

The study aims to estimate the short- and long-run effects of monetary policy on residential property prices in South Africa. Over the past decades, there has been a monetary…

Abstract

Purpose

The study aims to estimate the short- and long-run effects of monetary policy on residential property prices in South Africa. Over the past decades, there has been a monetary policy shift, from targeting money supply and exchange rate to inflation. The shifts have affected residential property market dynamics.

Design/methodology/approach

The Johansen cointegration approach was used to estimate the effects of changes in monetary policy proxies on residential property prices using quarterly data from 1980 to 2022.

Findings

Mortgage finance and economic growth have a significant positive long-run effect on residential property prices. The consumer price index, the inflation targeting framework, interest rates and exchange rates have a significant negative long-run effect on residential property prices. The Granger causality test has depicted that exchange rate significantly influences residential property prices in the short run, and interest rates, inflation targeting framework, gross domestic product, money supply consumer price index and exchange rate can quickly return to equilibrium when they are in disequilibrium.

Originality/value

There are limited arguments whether the inflation targeting monetary policy framework in South Africa has prevented residential property market boom and bust scenarios. The study has found that the implementation of inflation targeting framework has successfully reduced booms in residential property prices in South Africa.

Details

International Journal of Housing Markets and Analysis, vol. 17 no. 7
Type: Research Article
ISSN: 1753-8270

Keywords

Book part
Publication date: 13 May 2019

Rosaria Rita Canale and Rajmund Mirdala

The role of money and monetary policy of the central bank in pursuing macroeconomic stability has significantly changed over the period since the end of World War II…

Abstract

The role of money and monetary policy of the central bank in pursuing macroeconomic stability has significantly changed over the period since the end of World War II. Globalization, liberalization, integration, and transition processes generally shaped the crucial milestones of the macroeconomic development and substantial features of economic policy and its framework in Europe. Policy-driven changes together with variety of exogenous shocks significantly affected the key features of macroeconomic environment on the European continent that fashioned the framework and design of monetary policies.

This chapter examines the key basis of the central bank’s monetary policy on its way to pursue and preserve the internal and external stability of the purchasing power of money. Substantial elements of the monetary policy like objectives and strategies are not only generally introduced but also critically discussed according to their accuracy, suitability, and reliability in the changing macroeconomic conditions. Brief overview of the Eurozone common monetary policy milestones and the past Eastern bloc countries’ experience with a variety of exchange rate regimes provides interesting empirical evidence on origins and implications of vital changes in the monetary policy conduction in Europe and the Eurozone.

Details

Fiscal and Monetary Policy in the Eurozone: Theoretical Concepts and Empirical Evidence
Type: Book
ISBN: 978-1-78743-793-7

Keywords

Book part
Publication date: 1 January 2009

Richard Rosenberg, Adrian Gonzalez and Sushma Narain

Over the past two decades, institutions that make microloans to low-income borrowers in developing and transition economies have focused increasingly on making their lending…

Abstract

Over the past two decades, institutions that make microloans to low-income borrowers in developing and transition economies have focused increasingly on making their lending operations financially sustainable by charging interest rates that are high enough to cover all their costs. They argue that doing so will best ensure the permanence and expansion of the services they provide. Sustainable (i.e., profitable) microfinance providers can continue to serve their clients without needing ongoing infusions of subsidies and can fund exponential growth of services for new clients by tapping commercial sources, including deposits from the public.

Details

Moving Beyond Storytelling: Emerging Research in Microfinance
Type: Book
ISBN: 978-1-84950-682-3

Article
Publication date: 17 August 2021

Elena Fedorova and Elena Meshkova

This paper aims to examine the relationship between monetary policy and market interest rates. This paper examines the efficiency of interest rate channel used in monetary…

Abstract

Purpose

This paper aims to examine the relationship between monetary policy and market interest rates. This paper examines the efficiency of interest rate channel used in monetary regulation as well as implementation of monetary policy under low interest rates. This paper examines and reviews the scientific literature published over the past 30 years to determine primary research areas, to summarize their results and to identify appropriate measures of monetary policy to be used in practice in changing economic environment.

Design/methodology/approach

This paper reviews 94 studies focused on the relationship between monetary policy and market interest rates in terms of meeting the goals of macroeconomic regulation. The articles are selected on the basis of Scopus citation and bibliometric analysis. A major feature of this paper is the use of text analysis (data preparation, frequency of terms and collocations use, examination of relationships between terms, use of principal component analysis to determine research thematic areas). Using the method of principal component analysis while studying abstracts this paper reveals thematic areas of the research. Thus, the conducted text analysis provides unbiased results.

Findings

First, this paper examines the whole complex of relationships between monetary policy of central banks and market interest rates. Second, this research reviews a wide range of literature including recent studies focused on specific features of monetary policy under low and negative rates. Third, this study identifies and summarizes the thematic areas of all the researches using text analysis (transmission mechanism of monetary policy, efficiency of zero interest rate policy, monetary policy and term structure of interest rates, monetary policy and interest rate risk of banks, monetary policy of central banks and financial stability). Finally, this paper presents the most important findings of the studied articles related to the current situation and trends on the financial market as well as further research opportunities. This paper finds the principal results of studies on significant issues of monetary policy in terms of its efficiency under low interest rates, influence of its instruments on term structure of interest rates and role of banking sector in implementation of transmission mechanism of monetary policy.

Research limitations/implications

The limitation of the review is examining articles for the study period of 30 years.

Practical implications

Central banks of emerging economies should apply the instruments and results of the countries' monetary policies reviewed in this paper. Using text analysis this paper reveals the main thematic areas and summarizes findings of the articles under study. The analysis allows presenting the main ideas related to current economic situation.

Social implications

The findings are of great value for adjusting the monetary policy of central banks. Also, these are important for people because these show the significant role of monetary policy for the economic growth.

Originality/value

Using text analysis this paper reveals the main thematic areas (transmission mechanism of monetary policy, efficiency of zero interest rate policy, monetary policy and term structure of interest rates, monetary policy and interest rate risk of banks, monetary policy of central banks and financial stability) and summarizes findings of the articles under study. The analysis allows defining the current ideas relevant to the monetary policy of developing countries. It is important for central banks because it examines the monetary policy problems and proposes optimal solutions.

Details

International Journal of Development Issues, vol. 20 no. 3
Type: Research Article
ISSN: 1446-8956

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Article
Publication date: 10 December 2019

Luis Felipe Zegarra

The purpose of this paper is to analyze the effect of political instability on rural credit in Lima between 1835 and 1865. In particular, it explores the effects of wars on…

Abstract

Purpose

The purpose of this paper is to analyze the effect of political instability on rural credit in Lima between 1835 and 1865. In particular, it explores the effects of wars on interest rates for the agricultural sector.

Design/methodology/approach

The paper relies on primary sources for the study of the early credit market of Lima. In particular, the study relies on a sample of more than 800 notarized loans for 1835–1865, collected from the National Archives of Peru, to determine the effect of wars on the cost of credit.

Findings

The evidence shows that wars increased interest rates on rural loans and that the impact of wars on the cost of credit was greater when the State lacked fiscal resources. Political instability made funding more costly for landlords and farmers, especially in the late 1830s and early 1840s.

Originality/value

This paper is one of the few historical studies on the role of wars on rural credit in Latin America. It contributes to our understanding of the linkages between political instability and financial development.

Details

Agricultural Finance Review, vol. 80 no. 2
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 6 October 2021

Shailesh Rastogi, Adesh Doifode, Jagjeevan Kanoujiya and Satyendra Pratap Singh

Crude oil, gold and interest rates are some of the key indicators of the health of domestic as well as global economy. The purpose of the study is to find the shock volatility and…

Abstract

Purpose

Crude oil, gold and interest rates are some of the key indicators of the health of domestic as well as global economy. The purpose of the study is to find the shock volatility and price volatility effects of gold and crude oil market on interest rates in India.

Design/methodology/approach

This study finds the mutual and directional association of the volatility of gold, crude oil and interest rates in India. The bi-variate GARCH models (Diagonal VEC GARCH and BEKK GARCH) are applied on the sample data of gold price, crude oil price and yield (interest rate) gathered from November 30, 2015 to November 16, 2020 (weekly basis) to investigate the volatility association including the volatility spillover effect in the three markets.

Findings

The main findings of the study focus on having a long-term conditional correlation between gold and interest rates, but there is no evidence of volatility spillover from gold and crude oil on the interest rates. The findings of the study are of great importance especially to the policymakers, as they state that the fluctuations in prices of gold and crude oil do not adversely impact the interest rates in India. Therefore, the fluctuations in prices of gold and crude may generally impact the economy, but it has nothing to do with interest rate in particular. This implies that domestic and foreign investments in the country will not be affected by gold and crude oil that are largely driven by interest rates in the country.

Practical implications

Gold and crude oil are two very important commodities that have their importance not only for domestic affairs but also for international business. They veritably influence the economy including forex exchange for any nation. In addition to this, the researchers believe the findings will provide insights to policymakers, stakeholders and investors.

Originality/value

Gold and crude oil undoubtedly influence the exchange rates but their impact on the interest rates in an economy is not definite and remains ambiguous owing to the mixed findings of the studies. The lack of studies related to the impact of gold and crude oil on the interest rates, despite them being essentials for the health of any economy is the main motivation of this study. This study is novel as it investigates the volatility impact of crude oil and gold on interest rates and contributes to the existing literature with its findings.

Details

South Asian Journal of Business Studies, vol. 12 no. 3
Type: Research Article
ISSN: 2398-628X

Keywords

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