Download or read book Interest Rate Targeting and the Dynamics of Short Term Rates written by Pierluigi Balduzzi and published by . This book was released on 2008 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore the link between the overnight fed funds rate, which is actively targeted by the Federal Reserve, and longer-maturity term fed funds rates. We develop a term-structure model which explicitly accounts for interest rate targeting and for the predictability of future target changes. The model is able to replicate some qualitative features of the dynamic behavior of deviations of short-term rates from the target.
Download or read book Interest Rate Targeting in a Small Open Economy written by Mr.Guillermo Calvo and published by International Monetary Fund. This book was released on 1990-03-01 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: An important hurdle in analyzing interest rate targeting is that standard models usually lead to price level or inflation rate indeterminacy. This paper develops a simple framework in which such problems do not arise because the bonds whose interest rate is controlled provide liquidity services. This framework is used to examine interest rate targeting in a small open economy under predetermined exchange rates. A permanent increase in the interest rate has no real effects. In contrast, a temporary increase in the interest rate leads to higher consumption and to a current account deficit that worsens over time.
Download or read book Monetary Policy Interest Rate Rules and the Term Structure of Interest Rates written by Ralf Fendel and published by Peter Lang Publishing. This book was released on 2007 with total page 216 pages. Available in PDF, EPUB and Kindle. Book excerpt: Interest rate rules play an important role in the empirical analysis of monetary policy as well as in modern monetary theory. Besides giving a comprehensive insight into this line of research the study incorporates the term structure of interest rates into interest rate rules. This is performed analytically as well as empirically. In doing so, state of the art techniques of modern finance for the analysis of the term structure of interest rates are introduced into the macroeconomic concept of interest rate rules. The study implies that from the theoretical perspective term structure effects are an important extension of interest rate rules. From an empirical perspective it shows that including term structure effects in interest rate reaction functions improves our understanding of the interest rate setting of the Deutsche Bundesbank and the European Central Bank.
Download or read book Learning Macroeconomic Dynamics and the Term Structure of Interest Rates written by Hans Dewachter and published by . This book was released on 2006 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a macroeconomic model in which agents learn about the central bank's inflation target and the output-neutral real interest rate. We use this framework to explain the joint dynamics of the macroeconomy, and the term structures of interest rates and inflation expectations. Introducing learning in the macro model generates endogenous stochastic endpoints which act as level factors for the yield curve. These endpoints are suffciently volatile to account for most of the variation in long-term yields and inflation expectations. As such, this paper complements the current macro-finance literature in explaining long-term movements in the term structure without reference to additional latent factors.
Download or read book Interest Rate Analysis and Forecasting written by David Kern and published by . This book was released on 1992 with total page 152 pages. Available in PDF, EPUB and Kindle. Book excerpt: The focus of this book is on interest rate forecasting, and the interaction between analytical factors, political and economic developments and changes in the financial markets. The book takes an international approach with the emphasis on the USA, Germany, Japan and the UK.
Download or read book Simple Rules for Monetary Policy written by John Carroll Williams and published by . This book was released on 1999 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Interest Rate Targetting and the Dynamics of Short term Rates written by Pierluigi Balduzzi and published by . This book was released on 1997 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Heterogeneous Information About the Term Structure of Interest Rates Least Squares Learning and Optimal Interest Rate Rules for Inflation Targeting written by Eric Schaling and published by . This book was released on 2007 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we incorporate the term structure of interest rates in a standard inflation forecast targeting framework. Learning about the transmission process of monetary policy is introduced by having heterogeneous agents - i.e., the central bank and private agents - who have different information sets about the future sequence of short-term interest rates. We analyse inflation forecast targeting in two environments. One in which the central bank has perfect knowledge, in the sense that it understands and observes the process by which private sector interest rate expectations are generated, and one in which the central bank has imperfect knowledge and has to learn the private sector forecasting rule for short-term interest rates. In the case of imperfect knowledge, the central bank has to learn about private sector interest rate expectations, as the latter affect the impact of monetary policy through the expectations theory of the term structure of interest rates. Here, following Evans and Honkapohja (2001), the learning scheme we investigate is that of least-squares learning (recursive OLS) using the Kalman filter. We find that optimal monetary policy under learning is a policy that separates estimation and control. Therefore, this model suggests that the practical relevance of the breakdown of the separation principle and the need for experimentation in policy may be limited.
Download or read book Regime Shifts in Short Term Riskless Interest Rates written by Walter N. Torous and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Chan, Karolyi, Longstaff, and Sanders [1992] find no evidence that the October 1979 change in Federal Reserve operating policy resulted in a once-and-for-all deterministic break in the behavior of short term riskless interest rates. In contrast, we provide evidence of such a regime shift even after allowing the volatility of interest rate changes to depend on the level of interest rates. However, rather than modeling this regime shift as a permanent event with no further shifts possible, it is more realistic to model the change in regimes itself as a random variable. Accordingly, we put forward a stochastic volatility interest rate model which generalizes previous specifications of interest rate dynamics and allows testing for stochastic regime shifts. This Markov regime shifting model provides a more accurate description of the behavior of U.S. short term riskless interest rates. We also consider a specification that allows interest rate volatility to follow a diffusion process and we provide a statistically efficient integration-based filtering procedure to estimate its parameters. Given U.S. short term riskless interest rate data, we cannot statistically distinguish between these alternative models. In either case, once the stochastic nature of interest rate volatility is taken into account, we find little or no evidence of a deterministic structural break in corresponding stochastic volatility interest rate dynamics around October 1979.
Download or read book Short term Interest Rates Inflation Dynamics and Price cost Margins written by Mahsa Agha Gholizadeh and published by . This book was released on 2015 with total page 201 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation investigates the possibility that monetary policy shocks have supply-side or "cost-channel" effects as well as demand-side effects. This dissertation specifically attempts to shed more light on the transmission mechanism of monetary policy to inflation dynamics and price-cost margins (PCMs). During a time of rising short-term interest rates, there is often discussion of rising inventory costs and deterioration of firms' balance sheets, along with the possibility of firms passing these higher costs along to consumers in the form of higher markups.
Download or read book Modelling Target Areas for Short Term Interest Rates written by Gustavo Adolfo Junca Rodriguez and published by . This book was released on 2007 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article presents a short-term interest rate monetary model; it generalises Junca and Rodriacute;guez's interest rate formation model and captures the exogenous and endogenous factors determining monetary supply and short-term interest rate behaviour. Short-term interest rate rises with increased expectations of future inflation, external interest rate and future short-term interest-rate expectations. The model shows that a policy for controlling the amount of money could stabilise the short-term rate, as well as other interest rates.
Download or read book A Model of Target Changes and the Term Structure of Interest Rates written by Pierluigi Balduzzi and published by . This book was released on 1993 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore the effects of official targeting policy on the term-structure of nominal interest rates, adapting relevant insights from theoretical work on "peso problems" to account for realistic infrequency of target changes. Our analysis of daily U.S. interest rates and newly available historical targets provides an interpretation for persistent spreads between short-term money-market rates and overnight fed-funds targets, and for the poor performance of expectations-hypothesis tests: it is the policy-induced component of fed funds dynamics that appears to be erroneously anticipated by the market. Still, allowance for serial correlation in target changes makes it possible to extract from interest-rate data an expected-knoll series which is quite consistent with the assumptions of the model, indicating that some features of the interest-rate-targeting process are incorporated by market expectations.
Download or read book Inflation Targeting and the Dynamics Between Exchange Rates and Interest Rates written by Yongli Luo and published by . This book was released on 2014 with total page 4 pages. Available in PDF, EPUB and Kindle. Book excerpt: To ensure financial market stabilities, many Latin America countries implemented pure floating and inflation targeting (FIT) policies following the IMF's suggestions. The effectiveness of such policies is under investigation. This paper examines the long-run relationship between the real exchange rates (RERs) and real interest rate (RIR) differentials in major Latin America countries over 1993-2009. It shows there are long-run cointegrations between the RERs and RIR differentials in Argentina, Chile and Columbia, as well as long-run causal relationships in Brazil, Mexico and Venezuela. The results support that the FIT regime has facilitated the regional money market and currencies stabilizations in Latin America. The findings have important implications for policy makers and international investors in emerging markets.
Download or read book A Model of Target Changes and the Term Structure of Interest Rates written by Pierluigi Balduzzi and published by . This book was released on 2008 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore the effects of overnight-rate targeting on nominal interest rates of longer maturities. In a realistic model of noisy targeting and infrequent target changes, expectations of future policy actions introduce persistent spreads between interest rates of different maturities. Some empirical features of U.S. money-market daily interest rate data are broadly consistent with our theoretical assumptions and results. Not surprisingly, however, the data reject the expectations-hypothesis (EH) relation that we take as a working assumptions. A newly available series of historical interest-rate targets and simple tests based on our theoretical insights suggest that the EH rejection may be due to erroneous market expectations of the policy-induced component of fed funds dynamics. We briefly discuss how the size and volatility of such expectations may be interpreted from the perspective of our theoretical framework.
Download or read book Inflation Expectations written by Peter J. N. Sinclair and published by Routledge. This book was released on 2009-12-16 with total page 402 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.
Download or read book Exchange Rate Dynamics Under a Currency Board when Policy Rates are Zero written by Cho H. Hui and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Dynamics of the Term Structure of Interest Rates in the United States in Light of the Financial Crisis of 2007 2010 written by Mr. Marco Rodriguez Waldo and published by International Monetary Fund. This book was released on 2011-04-01 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper assesses the dynamics of the term structure of interest rates in the United States in light of the financial crisis in 2007-10. In particular, this paper assesses the dynamics of the term structure of U.S. Treasury security yields in light of economic and financial events and the monetary policy response since the inception of the crisis in mid-2007. To this end, this paper relies on estimates of the term structure using Nelson-Siegel models that make use of unobservable or latent factors and macroeconomic variables. The paper concludes that both the latent factors and macroeconomic variables explain the dynamics of the term structure of interest rates, and the expectations of the impact on macroeconomic variables of changes in financial factors, and vice versa, have changed little with the financial crisis.
