The impact of public debt on the long-term interest rates in the euro area member countries during 2003-2010

Piotr Misztal

doi:10.12775/oec.2011.011

The impact of public debt on the long-term interest rates in the euro area member countries during 2003-2010

Oeconomia Copernicana ◽

10.12775/oec.2011.011 ◽

2011 ◽

Vol 2 (3) ◽

pp. 23-42

Author(s):

Piotr Misztal

Keyword(s):

Interest Rate ◽

Interest Rates ◽

Euro Area ◽

Public Debt ◽

Empirical Studies ◽

Impulse Response Function ◽

The Real ◽

The Impact ◽

The Relationship

The main aim of the article is to analyze the relationship between public debt and the real, long-term interest rates in the euro area member countries during 2003-2010. The first part dealt with theoretical analysis and the most important results of empirical studies concerning the relationship between public debt and the real, long-term interest rates. In the next part of article, there were examined the relationships between public debt and the real, long-term interest rates in the euro area countries by using the Vector Autoregression Model (VAR). There were estimated elasticity coefficients of the real, long-term interest rates to public debt and measured the impact strength of public debt to changes in the real, long-term interest rate in the euro area member countries using the impulse response function. This was followed by decomposition of the real, long-term interest rate to estimate the impact of public debt and the real, long-term interest rate changes on the volatility of the real, long-term interest rate in the euro area member countries.

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CANDIDE et la monnaie

L Actualité économique ◽

10.7202/800659ar ◽

2009 ◽

Vol 52 (1) ◽

pp. 75-103

Author(s):

Jean-Pierre Aubry ◽

Pierre Duguay

Keyword(s):

Interest Rate ◽

Interest Rates ◽

Term Structure ◽

Structural Equations ◽

Reduced Form ◽

Real Sector ◽

Short Term ◽

The Real ◽

Structure Equations

Abstract In this paper we deal with the financial sector of CANDIDE 1.1. We are concerned with the determination of the short-term interest rate, the term structure equations, and the channels through which monetary policy influences the real sector. The short-term rate is determined by a straightforward application of Keynesian liquidity preference theory. A serious problem arises from the directly estimated reduced form equation, which implies that the demand for high powered money, but not the demand for actual deposits, is a stable function of income and interest rates. The structural equations imply the opposite. In the term structure equations, allowance is made for the smaller variance of the long-term rates, but insufficient explanation is given for their sharper upward trend. This leads to an overstatement of the significance of the U.S. long-term rate that must perform the explanatory role. Moreover a strong structural hierarchy, by which the long Canada rate wags the industrial rate, is imposed without prior testing. In CANDIDE two channels of monetary influence are recognized: the costs of capital and the availability of credit. They affect the business fixed investment and housing sectors. The potential of the personal consumption sector is not recognized, the wealth and real balance effects are bypassed, the credit availability proxy is incorrect, the interest rate used in the real sector is nominal rather than real, and the specification of the housing sector is dubious.

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INTEREST RATE TARGETS AND SPECULATIVE ATTACKS ON PUBLIC DEBT

Macroeconomic Dynamics ◽

10.1017/s1365100517000931 ◽

2018 ◽

Vol 23 (07) ◽

pp. 2698-2716 ◽

Cited By ~ 5

Author(s):

Pompeo Della Posta

Keyword(s):

Interest Rate ◽

Interest Rates ◽

Euro Area ◽

Public Debt ◽

Nonlinear Behavior ◽

Lender Of Last Resort ◽

Speculative Attacks ◽

The Interest Rate ◽

Exchange Rate Target Zones ◽

Primary Surplus

The application of exchange rate target zones modeling to interest rates allows interpreting the puzzles that emerged with the public debt euro area crisis, namely the nonlinear behavior of the interest rates and the fact that some stand-alone countries, not belonging to the euro area, have not been subject to speculative attacks in spite of equally large public debt-to-gross domestic product (GDP) ratios. As a matter of fact, this model shows that in the case of a noncredible upper threshold for the interest rate (that may be due to both the lack of room for increasing further the required government primary surplus and/or the absence of a monetary authority acting as a lender of last resort), the resulting public debt unsustainability determines an interest rate nonlinearity and makes the crisis possible for public debt levels that would be stable in the presence of a credible interest rate target.

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The Relationship between Interest Rates, Income, GDP Growth and House Prices

Research in Economics and Management ◽

10.22158/rem.v2n1p30 ◽

2017 ◽

Vol 2 (1) ◽

pp. 30 ◽

Cited By ~ 4

Author(s):

Ting Xu

Keyword(s):

Interest Rate ◽

Real Estate ◽

Interest Rates ◽

House Prices ◽

Gdp Growth ◽

The Real ◽

The Real Estate ◽

Control Power ◽

The Relationship

This paper will analyse the relationship between interest rate, income, GDP growth and house prices. First, the control power of interest rate for the prices is limited. Second, people’s income increases, thus that also increases the demand for housing. But house prices are too high and will cause buying pressure. Third, the real estate industry’s growth and GDP growth have inseparable relationship, they interact with each other.

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The Effect Of Government Debt Quantity Shocks On The Term Structure Of Interest Rates

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v5i1.2513 ◽

2011 ◽

Vol 5 (1) ◽

Cited By ~ 1

Author(s):

Riza Emekter ◽

John Geppert ◽

Benjamas Jirasakuldech

Keyword(s):

Interest Rate ◽

Interest Rates ◽

Term Structure ◽

Method Of Moments ◽

Public Debt ◽

Generalized Method Of Moments ◽

Government Debt ◽

Font Size ◽

Yield Model ◽

The Relationship

In this paper, the effect of the maturity composition of marketable public debt on the term structure of interest rate is explored.  The research has shown that this effect is relatively small.  Unlike previous research, the yield changes around the quantity shocks are analyzed in relation to these shocks.  Our results show that yields respond significantly to the auctioning of new bonds.  The announcements of auctions do not have any impact on yields.  A two-factor affine yield model is used to explain the relationship between quantity shocks in public debt and term structure of interest rates.  The parameters are estimated using Generalized Method of Moments.  While the relationship between quantities and yields is weak, yields can be related to the event of the auctioning process.

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Using Expected Geometric Values to Calculate the Cost of Interest in Hyper-inflationary Environments: the Case of Venezuela

Nepalese Journal of Insurance and Social Security ◽

10.3126/njiss.v2i2.31825 ◽

2019 ◽

Vol 2 (2) ◽

pp. 10-21

Author(s):

J. Tim Query ◽

Evaristo Diz Cruz

Keyword(s):

Interest Rate ◽

Interest Rates ◽

Expected Value ◽

Defined Benefit ◽

High Inflation ◽

Defined Benefit Plans ◽

The Interest Rate ◽

The Cost ◽

The Impact ◽

The Relationship

It is of vital importance to explore the relationship between pensions and inflationary levels because this forms a link between social policy and economic development in the context of Venezuela’s challenging economy and its impact on the development of pension systems. With such rampant inflation, companies must adjust the rates of salary increases to avoid a significant decrease in the purchasing power of income from defined benefit plans. Our research seeks to find the possibility of using an average geometric rate of future interest rates expressed as an expected value to discount obligations. Consequently, the cost of interest associated with the actuarial liability of the Benefit plans increases substantially in the next fiscal period to the actuarial valuation, sometimes compromising its sustainability over time. In order to minimize this problem, two scenarios for calculating the interest rate are proposed to smooth out this volatile effect; both are based on a geometric average with the expectation of working life or with the duration of the obligations. We are careful to use a reasonable interest rate that is not so high as to compromise the cash flow, resulting in skewed annual results of the companies. Our research seeks to find the possibility of using an average geometric rate of future interest rates expressed as an expected value to discount obligations. We formulate and actuarially evaluate two different scenarios, based on job expectations and Macaulay's duration, of the obligations that allow the sustainability of the plan in an environment of extremely high inflation. To illustrate the impact of the basic annual expenditure of the period, the results of an actuarial valuation of an actual Venezuelan company were utilized. Despite some companies adjusting their book reserves increasingly through a geometric progression, the amounts associated with the costs of interest would be huge in any such adjustment pattern. Therefore, we suggest adoption of one of the alternatives described in the research.

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Competition in the Georgian banking sector and its impact on the credit policy of commercial banks

MATEC Web of Conferences ◽

10.1051/matecconf/202134208003 ◽

2021 ◽

Vol 342 ◽

pp. 08003

Author(s):

George Abuselidze ◽

Mariam Sharabidze

Keyword(s):

Interest Rate ◽

Interest Rates ◽

Commercial Banks ◽

Banking Sector ◽

Current Situation ◽

Competitive Environment ◽

Credit Policy ◽

The Impact ◽

The Relationship

Based on the role of banking sector in the development of the country’s economy, we consider it important to study the current situation in this sector. The existence of a competitive environment ensures the efficient functioning of the banking sector. The aim of the study is to estimate the competitive environment in the banking sector, to determine the relationship between competition and interest rates. The research is based on the use of different economic models and indexes. Competition in the banking sector is studied on the example of Georgian banking sector, for that we used HHI Net Loans and H-statistic indicators. The study analyses the impact of competition in the banking sector on the net interest income and interest rate in the same sector.

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The impact of inflation on the unemployment rate in Egypt: a VAR approach

SHS Web of Conferences ◽

10.1051/shsconf/202110706009 ◽

2021 ◽

Vol 107 ◽

pp. 06009

Author(s):

Emad Attia Mohamed Omran ◽

Yuriy Bilan

Keyword(s):

Unemployment Rate ◽

Time Series Data ◽

Empirical Studies ◽

Impulse Response Function ◽

High Rate ◽

Series Data ◽

Vector Autoregressive ◽

Political Effects ◽

The Impact ◽

The Relationship

Unemployment and inflation are among the most critical phenomena facing both developed and developing countries due to their harmful social, economic, and political effects. The Egyptian monetary policy’s main objective is to maintain a low inflation rate in the medium run to keep the confidence and a high rate of investment and economic growth. At the same time, economists argue that targeting a low-rate of inflation may increase unemployment. Although the classical Philips curve indicates a trade-off between inflation and unemployment, several empirical studies have argued that the relationship between inflation and unemployment depends on the shocks’ source and lagged responses. The main objective of this paper is to examine the relationship between inflation and Egypt’s unemployment rate. We used time-series data from 1980 to 2019, where a vector autoregressive (VAR) model and the Impulse response function tool (IRF) were employed. The results show that inflation has a positive relationship with GDP while negatively affecting the unemployment rate.

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Dynamic lag structure of deposits and loans interest rates and business cycles formation

Journal of Financial Regulation and Compliance ◽

10.1108/jfrc-09-2016-0078 ◽

2017 ◽

Vol 25 (2) ◽

pp. 114-132

Author(s):

Bijan Bidabad ◽

Abul Hassan

Keyword(s):

Interest Rate ◽

Business Cycles ◽

Interest Rates ◽

Banking System ◽

Real Economy ◽

Short Term ◽

Structural Dynamic ◽

Content Type ◽

The Real

Purpose This paper aims to study the structural dynamic behaviour of the depositors, banks and investors and the role of banks in the business cycles. The authors test the hypothesis: do banks’ behaviour make oscillations in the economy via interest rate? Design/methodology/approach The authors dichotomized banking activities into two markets: deposit and loan. The first market forms deposit interest rate, and the second market forms credit interest rate. The authors show that these two types of interest rates have non-synchronized structures, and that is why money sector fluctuation starts. As a result, the fluctuation is transferred to the real economy through saving and investment functions. Findings The empirical results show that in the USA, the banking system creates fluctuations in money and real economy, as well as through interest rates. Short-term interest rates had complex roots in their characteristic, while medium and long-term interest rates, though they were second-order difference equations, had real characteristic roots. However, short-term interest rates are the source of oscillation and form the business cycles. Research limitations/implications The authors tested the hypothesis for USA economy, while it needs to be tested for other economies as well. Practical implications The results show that though the source of fluctuations in the real economy comes from short-term interest rates, medium- and long-term interest rates dampen real economy fluctuations and also work as economic stabilisers. Originality/value Regarding the applied method, the topic is new.

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The effect of negative policy rates on the interest-rate pass-through mechanism in the eurozone

Review of Keynesian Economics ◽

10.4337/roke.2019.02.09 ◽

2019 ◽

Vol 7 (2) ◽

pp. 247-262 ◽

Cited By ~ 2

Author(s):

Yannis Panagopoulos ◽

Ekaterini Tsouma

Keyword(s):

Interest Rate ◽

Central Bank ◽

Interest Rates ◽

Money Market ◽

Negative Interest Rates ◽

Time Period ◽

Pass Through ◽

The Interest Rate ◽

The Impact ◽

The Relationship

This paper examines the impact of the June 2014 switch to negative interest rates (NIRs) by the European Central Bank (ECB) on the operation of the eurozone interest-rate pass-through (IRPT) mechanism. We focus on the relationship between major central-bank policy rates and selected money-market rates. That link is identified as the first stage of the IRPT mechanism and its dynamics are analysed using Granger causality and cointegration techniques for the time period January 2000–June 2017. Our empirical findings indicate a feedback relationship between the ECB policy and the money-market rates in the period prior to June 2014, but that relationship is non-operative when considering only the period of NIRs.

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O circuito finance-funding e a economia brasileira

Brazilian Keynesian Review ◽

10.33834/bkr.v1i1.28 ◽

2015 ◽

Vol 1 (1) ◽

pp. 108

Author(s):

Luiz Fernando de Paula

Keyword(s):

Interest Rates ◽

Public Debt ◽

Theoretical Perspective ◽

Credit Market ◽

Debt Structure ◽

The Real ◽

High Interest ◽

Financing Strategy

This paper evaluates the new long-term financing strategy adopted by the 2nd Dilma Rousseff’ government, from both a theoretical perspective and an analysis of some specificity of the financing process in Brazil. The article concludes that while high interest rates - the real ‘blemish’ of the Brazilian economy - and a deformed public debt structure predominate, we cannot expect major changes in the credit market in Brazil.

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