The Transmission of an Interest Rate Shock, Standard Mitigants and Household Behavior

2018 ◽  
Author(s):  
Mauro Mastrogiacomo
Keyword(s):  
Interest Rate ◽  
Household Behavior ◽  
Interest Rate Shock

scholarly journals The price puzzle and the role of South African monetary policy in Botswana and Namibia

2012 ◽  
Vol 5 (1) ◽  
pp. 193-214
Author(s):  
Philippe Burger ◽  
Helvi Fillipus ◽  
Innocent Molalapata
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
South African ◽  
Reaction Functions ◽  
Transmission Mechanisms ◽  
Price Puzzle ◽  
The Interest Rate ◽  
Monetary Transmission Mechanisms ◽  
Interest Rate Shock

Using SVAR analysis, this paper finds what Sims calls a ‘price puzzle’, i.e. a case where CPI increases after a positive interest rate shock. The SVAR analysis controls for various monetary transmission mechanisms, including one based on the South African dominance hypothesis that links South African monetary policy to inflation in Botswana and Namibia. The paper follows Castelnuovo and Surico and interprets the price puzzle as a symptom of an indeterminate monetary policy. Subsequently the paper explores the finding of indeterminate monetary policy further by using an unstructured VAR to estimate the monetary reaction functions of Botswana and Namibia. These results also point to the presence of an indeterminate monetary policy. Lastly, both the SVAR and the unstructured VAR estimated for the monetary reaction function indicate the importance of the exchange rate, and not the interest rate, as a determinant of inflation in both Botswana and Namibia

scholarly journals The Interest Rate Sensitivity of Investment

2019 ◽  
Vol 52 (2) ◽  
pp. 173-190
Author(s):  
Guido Baldi ◽  
Alexander Lange
Keyword(s):  
United States ◽  
Interest Rate ◽  
Rate Sensitivity ◽  
The United States ◽  
Jel Classification ◽  
Short Term ◽  
Vector Autoregressive ◽  
The Interest Rate ◽  
European Economies ◽  
Interest Rate Shock

Abstract The interest rate sensitivity of investment has often played an important role in macroeconomic models. However, many vector autoregressive (VAR) models do not include investment to the list of variables. In this paper, we empirically investigate the size and the evolution of the interest rate sensitivity of investment for the United States and the four largest European economies in the last few decades. We use a VAR model with four variables at quarterly frequency: real investment, real gross domestic product (GDP), inflation, and a measure of the short-term interest rate. In our VAR, the structural interest rate shock is identified under the assumption that macroeconomic quantities and inflation react to interest rate innovations with a lag. We test the appropriateness of this specification by comparing our approach with the identification of shocks derived from the changes in volatility approach. For the countries under consideration, we determine a date during either the 1980s or the 1990s where the interest rate sensitivity of investment began to decrease and became less responsive to monetary policy. In addition, we find that the interest rate sensitivity of investment has been higher in the United States than in Europe, particularly in the first subperiod. Zusammenfassung Die Zinssensitivität der Investitionen spielt oft eine große Rolle in theoretischen makroökonomischen Modellen. In dieser Studie untersuchen wir empirisch die Höhe und die zeitliche Änderung der Zinssensitivität der Investitionen für die Vereinigten Staaten und die vier größten europäischen Volkswirtschaften. Wir verwenden ein VAR-Modell mit vier Variablen: reale Investitionen, reales Bruttoinlandsprodukt, Inflation und kurzfristige Zinsen. In unserem VAR identifizieren wir den strukturellen Schock unter der Annahme, dass die realen makroökonomischen Variablen verzögert auf einen Zinsschock reagieren. Wir testen die Angemessenheit dieser Spezifikation, indem wir unsere Vorgehensweise mit der Identifikation durch den “changes in volatility approach” vergleichen. Wir finden heraus, dass entweder in den 1980er oder frühen 1990er Jahren ein Strukturbruch stattgefunden und sich die Zinssensitivität der Investitionen verringert hat. Interessanterweise zeigen unsere Resultate zudem, dass die Zinssensitivität der Investitionen in den Vereinigten Staaten höher gewesen ist als in den untersuchten europäischen Ländern – insbesondere bis in die 1980er Jahre. JEL Classification: E22, E43, E52

Interest Rate Pass-Through and Consumption Response: The Deposit Channel

2020 ◽  
pp. 1-45 ◽  
Author(s):  
Sumit Agarwal ◽  
Souphala Chomsisengphet ◽  
Yildiray Yildirim ◽  
Jian Zhang
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Household Consumption ◽  
Difference In Difference ◽  
Demographic Difference ◽  
Standard Difference ◽  
Pass Through ◽  
Financial Transactions ◽  
Interest Rate Shock ◽  
Debt Payment

This study assesses a new mechanism — the deposit channel — in the transmission of interest rate shock to household consumption using an administrative panel dataset of financial transactions for Turkey. Our empirical strategy exploits variation in consumer's adherence to the Muslim laws that forbid earning interest and employs a standard difference-in-difference design. Following an unanticipated announcement of interest rate hike, rate-sensitive consumers significantly reduce their overall spending and the response persists throughout the post-announcement period. The response of debt payment, disparate exposure to inflation, and exchange rate, the demographic difference can hardly fully account for the documented consumption response heterogeneity.

scholarly journals Fiscal costs of monetary policy: indirect effects of an interest rate shock on Brazilian public net debt

2016 ◽  
Vol 36 (3) ◽  
pp. 557-579
Author(s):  
LAURA CARVALHO ◽  
ANDRÉ DINIZ ◽  
ÍTALO PEDROSA ◽  
PEDRO ROSSI
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Indirect Effects ◽  
International Reserves ◽  
Ambiguous Effect ◽  
The Relationship ◽  
Interest Rate Shock ◽  
Public Bonds

ABSTRACT: The paper estimates the fiscal cost of an increase in the Brazilian policy interest rate - the SELIC - by considering not only the direct effect on the yield of public bonds that are indexed to the SELIC, but also indirect effects on: (i) the yield of public bonds that are indexed to the exchange rate and inflation, and (ii) the stock of public net debt through adjustments in the value of international reserves measured in domestic currency. Projections are based on the estimation of the relationship between interest rates, exchange rates and inflation by means of a vector auto-regression. We conclude that the inclusion of such indirect effects has an ambiguous effect on the response of the implicit interest rate on public net debt to shocks in the SELIC, when adjustments in the value of international reserves are not considered. However, the inclusion of the latter amplifies the fiscal cost of a more restrictive monetary policy. These results call for a better coordination between monetary, fiscal and exchange rate policies in Brazil.

Revisiting the Link between House Prices and Monetary Policy

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Shiu-Sheng Chen ◽  
Tzu-Yu Lin
Keyword(s):  
South Africa ◽  
Monetary Policy ◽  
Interest Rate ◽  
The Netherlands ◽  
House Prices ◽  
House Price ◽  
Monetary Policy Shocks ◽  
The Us ◽  
Policy Shocks ◽  
Interest Rate Shock

Abstract This paper revisits the link between house prices and monetary policy using a data set on house prices provided by the Bank for International Settlements. It is found that a loose monetary policy unambiguously results in a rise in real house prices, and such an increase is statistically significant for 19 of the 20 countries studied here. Empirical results also show that for some countries (Belgium, Canada, Switzerland, Denmark, the Netherlands, Sweden, and South Africa), the interest rate shock can explain a large percentage of real house price movements. The response of house prices to monetary policy shocks varies between countries, and the strength of the relationship between house prices and monetary policy can be associated with financial liberalization. On the other hand, evidence shows that interest rate shock plays an important role in explaining recent house price hikes for Australia, Spain, Ireland, the Netherlands, the US, and South Africa. In particular, during 2002–2006, on average 24% of the house price hikes in the US can be attributed to monetary policy shocks. Finally, we also find evidence that central banks react to the housing market, particularly in those countries adopting a policy of inflation targeting.

scholarly journals THE DYNAMICS OF INDONESIA INFLATION: WHAT CAN WE LEARN FROM INFLATION DISAGGREGATION?

2014 ◽  
Vol 16 (1) ◽  
pp. 43-79
Author(s):  
IGP Wira Kusuma
Keyword(s):  
Interest Rate ◽  
Price Volatility ◽  
Macroeconomic Shocks ◽  
Speed Of Adjustment ◽  
Price Puzzle ◽  
Disaggregated Data ◽  
Vector Auto Regression ◽  
Interest Rate Shock ◽  
Auto Regression

This paper employs disaggregated data of inflation combined with Factor Augmented Vector Auto Regression (FAVAR) to explore the price behaviour in Indonesia. The main finding of this analysis is that price behaviour in Indonesia exhibits heterogeneity. It is evident not only in terms of the magnitude, but also in the direction and the speed of adjustment to the new equilibrium in response to interest rate shock. Price volatility is mainly related to sector specific shocks instead of macroeconomic shocks. Another finding is, the price puzzle weakens once ITF is adopted. Keywords: price disaggregation, inflation, FAVAR, price puzzle.JEL classification: C32, E31, E52

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