Download or read book A Model of Borrowing and Lending with Fixed and Variable Interest Rates written by Thomas H. Mondschean and published by . This book was released on 1989 with total page 122 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Bank Lending and Interest Rate Changes in a Dynamic Matching Model written by Mr.Giovanni Dell'Ariccia and published by International Monetary Fund. This book was released on 1998-06-01 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents theory and evidence on the dynamic relationship between aggregate bank lending and interest rate changes. Theoretically, it proposes and solves a stochastic matching model where credit expansion and contraction are time consuming. It shows that the response of bank lending to changes in money market rates is likely to be asymmetric and depends crucially on two structural parameters: the speed at which new loans become available, and the speed at which banks recall existing loans. Empirically, it provides evidence that bank lending in Mexico and the United States responds asymmetrically to positive and negative shocks in money market rates.

Download or read book Variable Versus Fixed Rate Mortgages and Optimal Monetary Policy written by Jack Rogers and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The overall aim of the research presented in this thesis is threefold: To empirically examine monetary transmission to UK retail mortgage rates; to examine why fixed versus variable rate mortgage lending differs across EU-15 countries; and to build a DSGE model which can be used for analysing optimal monetary policy in economies with different proportions of fixed or variable rate mortgage contracts. Chapter 2 investigates the transmission from UK policy and a range of wholesale money market rates to retail mortgage rates using a single-equation error correction model (SEECM) framework, from 1995 to 2009. The results add to previous studies by showing that the UK retail banking sector is imperfectly competitive at the aggregate level. More specifically, discounted rates, and to a lesser extent fixed rates behave competitively, whilst standard variable rates do not, which can be interpreted as evidence of exploitation of inert borrower behaviour. A snap-shot of the relative levels of variable rate lending across EU-15 countries is taken in the next Chapter 3, illustrating general cross-country differences. Risk simulations show that economies more conducive to variable rate mortgages include those with relatively volatile, persistent, and low inflation; low and stable real interest rates; high real income growth; and low correlation between inflation and real interest rate shocks. Regressions show that macroeconomic histories may indeed be important determinants of variable rate mortgage prevalence. The final Chapter 4 integrates a quantity optimising banking sector that lends under either a fixed or variable rate, into a model with borrowing constrained households. This provides a framework that can be used to investigate relationships between the structure of debt contracts and monetary policy. In particular, the propagation of a productivity shock in the non-durable sector under Ramsey monetary policy is presented, and it is demonstrated that the introduction of overlapping debt contracts tempers the effect of the financial multiplier. An appropriate design of the composition of fixed versus variable rate debt contracts, both their length and interest rate composition, could therefore reduce the volatility of key economic variables, and so there are important policy implications.

Download or read book The Truth in Lending Act and Variable rate Mortgages and Balloon Notes written by Jonathan M. Landers and published by . This book was released on 1976 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book International Convergence of Capital Measurement and Capital Standards written by and published by Lulu.com. This book was released on 2004 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Optimal Loan Interest Rate Contract Design written by Robert H. Edelstein and published by . This book was released on 2002 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Our paper develops a theoretical framework for analyzing optimal loan interest rate contracts under conditions of risky, symmetric information. We obtain a series of closed form solutions for one-period (static) and multi-period (dynamic) optimal contracts. The optimal design for loan interest rate contracts depends upon the volatility of, and co-variation among the market interest rate, borrower collateral, and borrower income, as well as the loan contract time horizon and the risk preferences of lenders and borrowers. Our analysis demonstrates that for a risk averse borrower with stochastic collateral, variable interest rate contracts, if structured properly, are, in general, Pareto optimal. If the collateral value and/or borrower's future income are positively correlated with the market interest rate, optimal loan interest rate contracts will allocate more interest rate risk sharing to the borrower vis-a-vis the lender than would be the case in the absence of such correlation. This result occurs because the positive correlations make it quot;easierquot; for the borrower to repay loans when market interest rates rise, and vice versa. This, in turn, would enable the lender to reduce his risk exposure by receiving higher loan interest rate payments as market interest rates rise, and vice versa. The opposite would be true when the correlation between total borrower's wealth and the market interest rates is negative. While the specific optimal loan interest rate contract may be senstivie to the set of assumptions made, for plausible sets of assumptions, the optimal loan interest rate contract for the multi-period (dynamic) model often exhibits quot;mutedquot; responses to changes in the market interest rate, making fixed rate loan contracts a reasonable approximation for the optimal design. That may explain why, in the absence of optimal contracts, long-term borrowers tend to prefer fixed rate contracts, while short-term borrowers tend to prefer variable rates contracts. These conclusions are reinforced when exogenous prepayments and defaults are incorporated into our analysis.

Download or read book A Contingent Claims Valuation and Simulation Analysis of Standard Fixed Payment and Variable Rate Mortgage Loans written by Chung-Sik Chang and published by . This book was released on 1981 with total page 418 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Complex Mortgages CM written by Gene Amromin and published by DIANE Publishing. This book was released on 2011 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: CM became a popular borrowing instrument during the bullish housing market of the early 2000s but vanished rapidly during the subsequent downturn. These non-traditional loans (interest only, negative amortization, and teaser mortgages) enable households to postpone loan repayment compared to traditional mortgages and hence relax borrowing constraints. But, they increase household leverage and heighten dependence on mortgage refinancing. CM were chosen by prime borrowers with high income levels seeking to purchase expensive houses relative to their incomes. Borrowers with CM experience substantially higher ex post default rates than borrowers with traditional mortgages with similar characteristics. Illus. This is a print on demand report.

Download or read book Loan Portfolio Management written by and published by . This book was released on 1988 with total page 114 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book How to Choose Between Fixed and Variable Rate Loans written by Edwin O. Fischer and published by . This book was released on 2019 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: The current low-interest-rate landscape influences the decision whether to secure these low long-term interest rates with a fixed-rate agreement or to benefit from the current negative short-term rates with a variable-rate loan. The decision is based on expected future interest rates. We propose two criteria, namely the effective interest rate and the total repayments which serve as an approximation, to decide what type of loan is more advantageous. In this context, we also present the effects of varying future interest rates on the three selected repayment agreements; i.e. lump sum, constant principal and annuity repayments.

Download or read book Essays in Household Finance written by Natalie Cox Cox and published by . This book was released on 2017 with total page 116 pages. Available in PDF, EPUB and Kindle. Book excerpt: The use of technology by firms is changing the way insurance and lending markets function. I study the financial technology, or "fin-tech'', industry, which is characterized by a growing number of online lenders who use data on educational, employment, and financial outcomes to quickly assess the risk of prospective borrowers and offer individualized loan terms. In many ways, their financial "innovations'' can be thought of as movements towards more personalized products: interest rates that better reflect individuals' risk, payment plans that are tailored to individuals' monthly income and expenditures, and user-friendly interfaces that make financial decisions more intuitive and uncomplicated. On an individual level, as firms expand and customize product offerings, there is the potential for large efficiency gains. These innovations could also have wider implications for market structure; for example, if more accurate risk-based pricing creates clear winners and losers, it will change the distribution of consumer surplus. Advances in data-driven underwriting have both efficiency and equity implications for consumer lending markets where private and public credit options coexist. In the $1 trillion student loan market, private lenders now offer a growing distribution of risk-based interest rates, while the federally-run loan program sets a break-even, uniform interest rate. In my first chapter, I measure the overall gains in consumer surplus from such risk-based pricing and quantify the redistributional consequences of low-risk types refinancing out of the government pool into the private market. The empirical analysis is based on a unique applicant-level dataset from an online refinancing firm that contains information on loan terms, household balance sheets, and risk-based interest rates. I first leverage a series of firm-conducted interest rate experiments to estimate the sensitivity of borrowers' maturity and refinancing choices to interest rates. Using the maturity response, I then estimate a structural model of borrowers' repayment preferences. Using the estimated model, I show that comprehensive risk-based pricing generates large absolute gains in welfare of $480 per borrower relative to a break-even uniform price, and $400 relative to a coarser method of FICO-based pricing. If the federal pool conducts breakeven pricing, these efficiency gains come at a direct equity cost -- low risk surplus will increase on average by $2,300, while high risk surplus will fall by $2,100. In order to maintain access to the current uniform rate, the government would have to transition from break-even pricing to an average net subsidy of $2,080 per borrower. In the second chapter, I empirically analyze the fixed and variable rate decisions of borrowers who are financing large personal loans, and are given the option to switch rate types at any point. Many online lending firms now offer financial products that are more flexible and personalized than traditional loans; however, little is known about how consumers will interact with these more complete, but also more complex, contracts. Over my sample time period, the market index interest rate for the fixed and variable rate loans changed considerably. I first present reduced form evidence on the determinants of borrowers' initial rate decisions and the presence of switching costs, and then estimate a structural model that maps these findings to the coefficient of absolute risk aversion and a switching cost parameter. I compare the active and inactive rate choices of borrowers in different interest rate environments to separately identify switching costs from risk preferences.I show that while initial rate choices are very responsive to the prevailing interest rate environment, very few borrowers ever take advantage of the option to switch rate types even when interest rates increase. Specifically, I estimate a risk aversion parameter of .0564, which implies that borrowers are very risk averse, and lower and upper bounds on switching costs from $166 to $1,185. I also show that both the initial probability of choosing a variable rate loan and the probability of never switching are positively correlated with borrower liquidity constraints, which suggests that these borrowers are more focused on current monthly payments than future interest rate risk.

Download or read book NCUA Examiner s Guide written by United States. National Credit Union Administration and published by . This book was released on 1997 with total page 602 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book External Debt Statistics written by International Monetary Fund and published by International Monetary Fund. This book was released on 2003-06-25 with total page 327 pages. Available in PDF, EPUB and Kindle. Book excerpt: This Guide provides clear, up-to-date guidance on the concepts, definitions, and classifications of the gross external debt of the public and private sectors, and on the sources, compilation techniques, and analytical uses of these data. The Guide supersedes the previous international guidance on external debt statistics available in External Debt: Definition, Statistical Coverage, and Methodology (known as the Gray Book), 1988. The Guides conceptual framework derives from the System of National Accounts 1993 and the fifth edition of the IMFs Balance of Payments Manual(1993). Preparation of the Guide was undertaken by an Inter-Agency Task Force on Finance Statistics, chaired by the IMF and involving representatives from the BIS, the Commonwealth Secretariat, the European Central Bank, Eurostat, the OECD, the Paris Club Secretariat, UNCTAD, and the World Bank.

Download or read book Global Waves of Debt written by M. Ayhan Kose and published by World Bank Publications. This book was released on 2021-03-03 with total page 403 pages. Available in PDF, EPUB and Kindle. Book excerpt: The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.

Download or read book Theoretical Issues in International Borrowing written by Jeffrey Sachs and published by . This book was released on 1983 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: The current crisis in international lending points up a lesson re-learned several times in the past 150 years: the international loan markets function very differently from the textbook model of competitive lending. This paper discusses various extensions of the basic model. First, we amend the textbook model to show how limitations on a government'staxing authority may greatly affect its optimal borrowing strategy. Second, we explore the implications of adebtor country's option to repudiate debt. Third, we show that efficient lending may require collective actions by bank syndicates, and that a breakdown in collective action can result in serious inefficiencies and even financial panics.

Download or read book The Federal Home Loan Bank System written by Deborah Cohen and published by . This book was released on 1980 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Inside and Outside Liquidity written by Bengt Holmstrom and published by MIT Press. This book was released on 2013-01-11 with total page 263 pages. Available in PDF, EPUB and Kindle. Book excerpt: Two leading economists develop a theory explaining the demand for and supply of liquid assets. Why do financial institutions, industrial companies, and households hold low-yielding money balances, Treasury bills, and other liquid assets? When and to what extent can the state and international financial markets make up for a shortage of liquid assets, allowing agents to save and share risk more effectively? These questions are at the center of all financial crises, including the current global one. In Inside and Outside Liquidity, leading economists Bengt Holmström and Jean Tirole offer an original, unified perspective on these questions. In a slight, but important, departure from the standard theory of finance, they show how imperfect pledgeability of corporate income leads to a demand for as well as a shortage of liquidity with interesting implications for the pricing of assets, investment decisions, and liquidity management. The government has an active role to play in improving risk-sharing between consumers with limited commitment power and firms dealing with the high costs of potential liquidity shortages. In this perspective, private risk-sharing is always imperfect and may lead to financial crises that can be alleviated through government interventions.