Real Indeterminacy in Monetary Models with Nominal Interest Rate Distortions

2001 ◽  
Vol 4 (4) ◽  
pp. 767-789 ◽  
Author(s):  
Charles T. Carlstrom ◽  
Timothy S. Fuerst
Keyword(s):  
Interest Rate ◽  
Nominal Interest Rate ◽  
Monetary Models ◽  
Real Indeterminacy

Revolving cards: A financial analysis of the credit repayment and legal implications

2021 ◽  
Vol 39 (2) ◽  
Author(s):  
Salvador Cruz Rambaud ◽  
Salvador Cruz Vargas
Keyword(s):  
Interest Rate ◽  
Credit Card ◽  
Financial Analysis ◽  
Point Of View ◽  
Excessive Amount ◽  
Nominal Interest Rate ◽  
Legal Implications ◽  
Long Duration ◽  
Very High

The framework of this paper is credit card holding by users and consumers, more specifically, the so-called revolving cards. In most cases, the true interest rate applied to a credit is much higher than its nominal interest rate. Usually, this is due to the existence of some fees to be paid by the holder, and to the process of splitting the periods of interest. However, the contracted annual interest rate of revolving cards is very high which, together with the peculiar amortization system, gives rise to an excessive amount of interests. The objective of this paper is to describe and analyze, from a legal and financial point of view, the main characteristics of the credit repayment in revolving cards. We conclude that the complete amortization of the principal needs a long duration and the payment of a high amount of interests.

Natural disasters and monetary policy: evidence from an augmented Taylor rule

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nicholas Apergis ◽  
James E. Payne
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Interest Rate ◽  
Natural Disasters ◽  
Natural Disaster ◽  
Taylor Rule ◽  
Nominal Interest Rate ◽  
Policy Response ◽  
Content Type ◽  
Short Run

Purpose The purpose of this paper is to examine the short-run monetary policy response to five different types of natural disasters (geophysical, meteorological, hydrological, climatological and biological) with respect to developed and developing countries, respectively. Design/methodology/approach An augmented Taylor rule monetary policy model is estimated using systems generalized method of moments panel estimation over the period 2000–2018 for a panel of 40 developed and 77 developing countries, respectively. Findings In the case of developed countries, the greatest nominal interest rate response originates from geophysical, meteorological, hydrological and climatological disasters, whereas for developing countries the nominal interest rate response is the greatest for geophysical and meteorological disasters. For both developed and developing countries, the results suggest the monetary authorities will pursue expansionary monetary policies in the short-run to lower nominal interest rates; however, the magnitude of the monetary response varies across the type of natural disaster. Originality/value First, unlike previous studies, which focused on a specific type of natural disaster, this study examines whether the short-run monetary policy response differs across the type of natural disaster. Second, in relation to previous studies, the analysis encompasses a much larger panel data set to include 117 countries differentiated between developed and developing countries.

OPTIMAL MONETARY POLICY FOR THE EMU ACCESSION COUNTRIES. A NEW KEYNESIAN APPROACH

2014 ◽  
Vol 19 (7) ◽  
pp. 1427-1475 ◽  
Author(s):  
Anna Lipińska
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Optimal Policy ◽  
Nominal Exchange Rate ◽  
Nominal Interest Rate ◽  
Output Gap ◽  
Optimal Monetary Policy ◽  
Accession Countries ◽  
Dynamic Stochastic ◽  
Maastricht Criteria

This paper uses a dynamic stochastic general equilibrium model of a two-sector small open economy to analyze how the Maastricht criteria modify a fully credible optimal monetary policy in the Economic and Monetary Union accession countries. We show that if the country is not constrained by the criteria, optimal policy should stabilize fluctuations in PPI inflation, in the aggregate output gap, and in the domestic and international terms of trade. The optimal policy constrained permanently by the Maastricht criteria is characterized by reduced variability of the nominal exchange rate, CPI inflation, and the nominal interest rate and by lower optimal targets for CPI inflation and nominal interest rate. This policy results in higher variability and nonzero means for both PPI inflation and output gap, thus leading to additional, but small, welfare costs compared with the unconstrained policy.

scholarly journals MONETARY POLICY AND ENDOGENOUS MARKET STRUCTURE IN A SCHUMPETERIAN ECONOMY

2014 ◽  
Vol 20 (5) ◽  
pp. 1127-1145 ◽  
Author(s):  
Angus C. Chu ◽  
Lei Ji
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Interest Rate ◽  
Market Structure ◽  
Firm Size ◽  
Growth Effect ◽  
Nominal Interest Rate ◽  
Long Run ◽  
Endogenous Market Structure ◽  
Number Of Firms

This study develops a monetary Schumpeterian model with endogenous market structure (EMS) to explore the effects of monetary policy on the number of firms, firm size, economic growth, and social welfare. EMS leads to different results from previous studies in which market structure is exogenous. In the short run, a higher nominal interest rate reduces the growth rates of innovation, output, and consumption and decreases firm size through reduction in labor supply. In the long run, a higher nominal interest rate reduces the equilibrium number of firms but has no steady-state effect on economic growth and firm size because of EMS. Although monetary policy has no long-run growth effect, increasing the nominal interest rate permanently reduces the levels of output, consumption, and employment. Taking transition dynamics into account, we find that welfare is decreasing in the nominal interest rate and the Friedman rule is optimal in this economy.

scholarly journals On the Welfare Cost of Inflation and the Recent Behavior of Money Demand

2009 ◽  
Vol 99 (3) ◽  
pp. 1040-1052 ◽  
Author(s):  
Peter N Ireland
Keyword(s):  
Interest Rate ◽  
Money Demand ◽  
Demand Curve ◽  
Nominal Interest Rate ◽  
Welfare Cost Of Inflation ◽  
Friedman Rule ◽  
Long Run ◽  
Income Ratio ◽  
Interest Rate Rule ◽  
Relationship Of

Post-1980 US data trace out a stable long-run money demand relationship of Cagan's semi-log form between the M1-income ratio and the nominal interest rate, with an interest semielasticity below 2. Integrating under this money demand curve yields estimates of the welfare costs of modest departures from Friedman's zero nominal interest rate rule for the optimum quantity of money that are quite small. The results suggest that the Federal Reserve's current policy, which generates low but still positive rates of inflation, provides an adequate approximation in welfare terms to the alternative of moving all the way to the Friedman rule. (JEL E31, E41, E52)

scholarly journals The term structure of interest rates and inflation forecast targeting

2011 ◽  
Vol 12 (2) ◽  
pp. 162-179
Author(s):  
Eric Schaling ◽  
Willem Verhagen ◽  
Sylvester Eiffinger
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Term Structure ◽  
Inflation Targeting ◽  
Nominal Interest Rate ◽  
Term Spread ◽  
State Of The Economy ◽  
Output Persistence

This paper examines the implications of the expectations theory of the term structure of interest rates for the implementation of inflation targeting. We show that the responsiveness of the central bank’s instrument to the underlying state of the economy is increasing in the duration of the long-term bond.  On the other hand, an increase in duration will make long-term inflationary expectations - and therefore also the long-term nominal interest rate - less responsive to the state of the economy. The extent to which the central bank is concerned with output stabilisation will exert a moderating influence on the central bank’s response to leading indicators of future inflation. However, the effect of an increase in this parameter on the long-term nominal interest rate turns out to be ambiguous. Next, we show that both the sensitivity of the nominal term spread to economic fundamentals and the extent to which the spread predicts future output, are increasing in the duration of the long bond and the degree of structural output persistence. However, if the central bank becomes relatively less concerned about inflation stabilisation the term spread will be less successful in predicting real economic activity.

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