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Beginning in 2009, in many advanced economies, policy rates reached their zero lower bound (ZLB). Almost at the same time, oil prices started rising again. We analyze how the ZLB affects the propagation of oil shocks. As these shocks move inflation and output in opposite directions, their effects on economic activity are cushioned when monetary policy is constrained. The burst of inflation from an oil price increase lowers real interest rates at the ZLB and stimulates the interest-sensitive component of GDP, offsetting the usual contractionary effects. In fact, if the increase in oil prices is gradual, the persistent rise in inflation can cause a GDP expansion. [ABSTRACT FROM AUTHOR]

TIPS breakeven inflation rate, defined as the difference between nominal and TIPS yields of comparable maturities, is potentially useful as a real-time measure of market inflation expectations. In this paper, we provide evidence that a fairly large TIPS liquidity premium existed until recently, using a multi-factor no-arbitrage term structure model estimated with nominal and TIPS yields, inflation and survey forecasts of interest rates. Ignoring the TIPS liquidity premiums leads to counterintuitive implications for inflation expectations and inflation risk premium, and produces large pricing errors for TIPS. In contrast, models incorporating a TIPS liquidity factor generate much better fit for these variables and reveal a TIPS liquidity premium that was until recently quite large (∼ 1%) but has come down in recent years, consistent with the common perception that TIPS market grew and liquidity conditions improved. Our results indicate that after taking proper account of the liquidity conditions in the TIPS market, the movement in TIPS breakeven inflation rate can provide useful information for identifying real yields, expected inflation and inflation risk premium. [ABSTRACT FROM AUTHOR]

We examine the importance of incorporating macroeconomic information and, in particular, accounting for model uncertainty when forecasting the term structure of U.S. interest rates. We start off by analyzing and comparing the forecast performance of several individual term structure models. Our results confirm and extend results found in previous literature that adding macroeconomic information, through factors extracted from a large number of individual series, tends to improve interest rate forecasts. We then show, however, that the predictive power of individual models varies over time significantly. Models with macro factors are the more accurate in and around recession periods. Models without macro factors do particularly well in low-volatility subperiods such as the late 1990s. We demonstrate that this problem of model uncertainty can be mitigated by combining individual model forecasts. Combining forecasts leads to encouraging gains in predictability, especially for longer-dated maturities, and importantly, these gains are consistent over time. [ABSTRACT FROM AUTHOR]

Exchange rate movements are difficult to predict but there appear to be discernible patterns in how currencies jointly appreciate or depreciate against the dollar. In this paper, we study the dependence structure of a number of exchange rate pairs against the dollar. We employ a conditional copula approach to recover the joint distributions for pairs of exchange rates and study both the correlation and the upper and lower tail dependence of these distributions. We analyze changes in dependence measures over time, and we investigate whether these measures are affected by the business cycle or interest rate differentials. Our results show that dependencies are indeed time-varying. We find that foreign and U.S. recessions affect the joint dependence structure and that currencies with higher interest rate differentials tend to move less closely together, not only on average (correlation), but also when extreme events occur (tails). [ABSTRACT FROM AUTHOR]

The article presents an analysis on the issues with mortgage market, which is said to have begun suffering serious problems. Accordingly, mortgage defaults and delinquencies are specifically concentrated among borrowers whose mortgages are classified as subprime. It is being noted that about 70 percent of subprime mortgages required borrowers to pay a fee if they refinanced their mortgages, adding that mortgage rates tend to be lower on loans with prepayment penalties. The author stresses that the teaser rate for subprime mortgages was not especially low throughout the 2003-2007 period.

The article reports on the issues facing industries worldwide. It comments the plan of ANZ, one of the four largest Australian banks, to expand substantially in Asia. It talks on the attack of George Osborne, the shadow chancellor, to store card industry for charging excessively high interest rates. It also focuses on the effects of the credit crunch which have generated a surge of interest from consumers who think that they may have forgotten savings from dormant accounts in Great Britain.

This paper asks whether an aggressive monetary policy response to inflation is feasible in countries that suffer from fiscal dominance, as long as monetary policy also responds to fiscal variables. We find that if nominal interest rates are allowed to respond to government debt, even aggressive rules that satisfy the Taylor principle can produce unique equilibria. But following such rules results in extremely volatile inflation. This leads to very frequent violations of the zero lower bound on nominal interest rates that make such rules infeasible. Even within the set of feasible rules the optimal response to inflation is highly negative, and more aggressive inflation fighting is inferior from a welfare point of view. The welfare gain from responding to fiscal variables is minimal compared to the gain from eliminating fiscal dominance. [ABSTRACT FROM AUTHOR]

I test for stock return predictability in the largest and most comprehensive data set analyzed so far, using four common forecasting variables: the dividend- and earnings-price ratios, the short interest rate, and the term spread. The data contain over 20,000 monthly observations from 40 international markets, including 24 developed and 16 emerging economies. In addition, I develop new methods for predictive regressions with panel data. Inference based on the standard fixed effects estimator is shown to suffer from severe size distortions in the typical stock return regression, and an alternative robust estimator is proposed. The empirical results indicate that the short interest rate and the term spread are fairly robust predictors of stock returns in developed markets. In contrast, no strong or consistent evidence of predictability is found when considering the earnings- and dividend-price ratios as predictors. [ABSTRACT FROM AUTHOR]

The article focuses on the economic forecast in Turkey. The world economy was predicted to speed up from growth of 3.5 percent in 2005 in terms of market exchange rates to 4 percent in 2006. A key risk stems from the large current-account deficit in the U.S. as a reversal could be accompanied by a substantial weakening of U.S. demand and a break down of the dollar. The rising interest rates in the developed world which have increased risk aversion in global financial markets.

The article reports on the forecasts regarding the political, social and economical condition of Argentina from 2006-2007. It informs that the president, Nestor Kirchner of the Partido Justicialista, will serve as president until 2007 with an enhanced congressional majority, following the legislative election in October 2005. The government will run a primary fiscal surplus of above 3% of GDP in the forecast period. Growth will moderate in 2006-07, as slack in the economy is used up and higher interest rates weigh on demand growth. It has been expected that inflation would begin to fall in 2006-07, although it will remain near 10% in 2006. GDP growth forecast for 2006 has been expected to be 6.8%.

The article presents information on the recent economic and political developments in Belgium. The Liberal-Socialist government led by prime minister Guy Verhofstadt, will remain fragile. In January 2006, Belgium assumed the chairmanship of the Organization for Security and Cooperation in Europe. Business confidence strengthened by 3.9 percentage points in December, owing to favorable survey results from the manufacturing industry. The European Central Bank raised its official interest rates by 25 basis points to 2.25% after having kept them on hold at 2% since June 2003. The current-account surplus of Belgium from 5.3% of Gross Domestic Product in 2002 to 4.5% in 2003 and 3.4% in 2004.

The article presents information on recent economic and political developments in Kuwait. Sheikh Sabah al-Ahmed al-Jabr al-Sabah will replace ailing Sheikh Sabah al-Salem al-Sabah. The government will continue to pursue gradual economic change, with Kuwait expected to gain parliamentary approval over the next 12 months. The Kuwaiti dinar has been pegged to the US dollar since January 2003 and interest rates will continue to track closely set by the US Federal Reserve. Despite a fall in oil prices and rising import levels, the trade surplus in 2007 will be a very strong US$26.6bn, equivalent to 36.5% of GDP. Kuwait has significant sources of non-merchandise credits, and earnings from its large stock of foreign assets.

The article focuses on the domestic economy of Morocco. Growth in 2004 was led by robust expansion of mining and phosphates, energy, tourism, transport and construction and expansion of around 4% in agriculture. However, growth in manufacturing and other services was less buoyant. Overall investment increased in 2004 by around 6.5% as the government ramped up spending on various infrastructure projects. Private consumption grew by 7.5%, buoyed by higher rural incomes, low inflation, a reduction in interest rates and improved access to home loans for people on low incomes. On the other side of the equation, lending to the private sector picked up in the third quarter of 2004, to give moderate annual growth of just under 6%.

Many recent papers have studied movements in stock, bond, and currency prices over short windows of time around macro announcements. This paper adds to the announcement effects literature in two ways. First, we study the joint announcement effects across a broad range of assets—exchange rates and U.S. and foreign term structures. In order to evaluate whether the joint effects can be reconciled with conventional theory, we interpret the joint movements in light of uncovered interest rate parity or changes in risk premia. For several real macro announcements, we find that a stronger than expected release appreciates the dollar today, but that it must either (i) lower the relative risk premium for holding foreign currency rather than dollars, or (ii) imply considerable future expected dollar depreciation. The latter implies an overshooting behavior akin to that described by Dornbusch (1976). Second, we use a longer span of high frequency data than has been common in announcement work. A longer span of high frequency data contributes to the precision of our estimates and allows us to explore the possibility that the effects of macro surprises on asset prices have varied over time. We find evidence, for example, that PPI releases had a larger effect on U.S. interest rates before about 1992 than subsequently. [ABSTRACT FROM AUTHOR]

In a small open economy model with traded and non-traded goods this paper characterizes conditions under which interest rate rules induce aggregate instability by generating multiple equilibria. These conditions depend not only on how aggressively the rule responds to inflation, but also on the measure of inflation to which the government responds, on the degree of openness of the economy and on the degree of exchange rate pass-through. As an important policy implication, this paper finds that to avoid aggregate instability in the economy the government should implement an aggressive rule with respect to the inflation rate of the sector that has sticky prices. That is the non-traded goods inflation rate. As a by-product of this analysis, it is shown that ‘fear-of-floating’ governments that follow a rule that responds to both the CPI-inflation rate and the nominal depreciation rate or governments that implement ‘super-inertial’ interest rate smoothing rules may actually induce multiple equilibria in their economies. This paper also shows that for forward-looking rules, the determinacy of equilibrium conditions depend not only on the degree of openness of the economy but also on the weight that the government puts on expected future CPI-inflation rates. In fact rules that are ‘excessively’ forward-looking always lead to multiple equilibria. [ABSTRACT FROM AUTHOR]

Tests of the present-value model of the current account are frequently rejected by the data. Standard explanations rely on the ‘usual suspects’ of non-separable preferences, shocks to fiscal policy and the world real interest rate, and imperfect international capital mobility. We confirm these rejections on post-war Canadian data, then investigate their source by calibrating and simulating alternative versions of a small open economy, real business cycle model. Monte Carlo experiments reveal that, although each of the suspects matters in some way, a ‘canonical’ RBC model moves closest to the data when it features exogenous world real interest rate shocks. [ABSTRACT FROM AUTHOR]

Using a new approach, the authors of this paper re-examine the empirical evidence on the interactions between inflation and real variables. They find, using United States data of over 100 years that in the long run, the effect of inflation on investment and output is positive, as a Tobin type effect would suggest. However, the real interest rates are not independent of inflation. The authors find that models generating a reverse-Tobin effect may not be the best models for understanding the long-term real effects of inflation. This working paper can be found at the US Federal Reserve Board's International Finance Discussion Papers. You can access this by going to

The article offers information about the economic performance of Indonesia. It mentions that the country's stockmarket has recorded some significant movements, wherein the JSX Composite Index declines by 22% from a high of 4,193 on August 3, 2011 to a love of 3,270 on October 4, 2011. Moreover, it notes that the central bank observes the core inflation for the objectives of setting interest rates.

The article discusses the economic policy in Hong Kong, China. It is noted that the Hong Kong Monetary Authority has joined with international efforts to boost the global economy by cutting interest rates. It is revealed that the government has continued to assert its commitment to the currency peg and the International Monetary Fund has endorsed the currency policy of the country.

The article offers information on the economic conditions of the Philippines in 2009. It mentions that the Bangko Sentral ng Pilipinas (BSP) has lowered its interest rates for the first time on its overnight borrowing and lending rates by one-half of a percentage point. It notes that the government abandoned its plan to balance the budget in May 2008. Moreover, it asserts that the main reason for the deficit is a shortfall in tax revenues.

The article looks at the economic conditions in the U.S. in 2008. It observes that the home ownership rate is low as it was in 2002, at 67.8% in December 2007 as foreclosures are soaring and inventories are piling up. A slowdown in the economy and lower interest rates will keep the U.S. dollar relatively weak and reduce imports, helping to narrow the current account deficit.

The article reviews the economic performance of Hong Kong as of February 2008. The business confidence in the territory has remained high, its unemployment rate remains low and its interest rates are declining. Such factors could continue to boost retail sales in Hong Kong and could increase strong domestic demand. A positive economic performance has been justified by the decline in the unemployment rate of the territory in the final quarter of 2007.

The article presents information on the financial indicators for the economy of France. In the fourth quarter of 2005, there was a fall in the euro's trade-weighted exchange rate. One of the factors responsible for this has been the rising short-term interest rate differential between the U.S. and tightening of the euro area as monetary policy in the U.S. Recycling of petrodollars by oil-rich countries in the Middle East, is another factor for this. A final factor has been economic weakness and political uncertainty in the European Union.

The article presents strategies for long-term investment to fund retirement. It states that early investment will have longest time to accumulate interest earnings. It mentions that people should invest in fixed sums at fixed intervals regularly to reduce the risk of bad timing in stock market-based funds. It says that individuals should use tax shelters to receive full benefits.

The article offers information on the falling lease rentals of 20-25% on narrowbodies which could be due to the worse trading situation and decline in interest rates. As stated, the fall in lease rentals started when Aircastle sought to re-lease B737-700 aircraft after the collapse of Sterling Airways. It is noted that the declining rentals has extended to other members of the A320 and the B7637NG group which also translates to a negative effect on asset values. It is also noted that the fall in asset value resulted to low trading activity.

The article provides an economic policy outlook for Chile for 2009-2010. It is projected that Chile will be hit further as the global recession deepens in 2009. The Banco Central de Chile has announced that it will cut interest rates more aggressively than previously thought with the much higher risks to growth than those of inflation. Analysts have also revised their forecasts for the country's fiscal accounts.

The article reports on the affordability crisis on housing costs in Australia. It highlights the move of various mortgage lenders to increase median house rentals for A$400. According to Australian Property Monitors, its housing affordability has declined due to several factors including tight global credit market and interest rates increase.

The article reports developments on the financial indicators in France's domestic economy as of 2007. Particularly, French financial markets have been relatively unaffected by the U.S. sub-prime mortgage crisis, which emerged in July and August 2007. Meanwhile, the gradual increase in interest rates since December 2005 has already caused the pace of private-sector borrowing to slow. Moreover, equity prices fall steeply in third quarter of 2007.

The article presents the economic outlook in the Philippines for 2007 to 2008. The progress of its economy after the election of President Gloria Macapagal Arroyo has been faltering due to the pressing need to deal with political issues. The main policy aimed by the government was to make further progress over the next two years to reduce the budget deficits. Bangko Sentral ng Pilipinas has controlled the interest rates since October 2005 to support investment and to promote economic growth.

The article focuses on the financial indicators of the domestic economy of Italy. The country's stockmarket rises by almost 20 percent in 2006. Bank credit continued to boost strongly at the end of 2006, despite higher euro area rates. Bank lending rates have edged higher as the European Central Bank has raised its benchmark interest rates. Other significant information relative to the matter is provided.

Presents financial indicators of the French economy. Increases in short-term interest rates in the U.S.; Information on French equity prices; Outlook for corporate earnings.

Reports on the decision of the National Bank of Hungary to cut interest rates in 2005. Factors that would allow for further reductions in borrowing costs; Forecast on consumer price inflation; Risks involved in lowering interest rates.

Interest rates in South Korea are unlikely to rise sharply during the next few months. The central bank, the Bank of Korea, will respond to simmering inflation by tightening monetary policy gradually rather than rapidly. The Bank of Korea's key interest rate, the overnight call rate, which was cut to a record low of 3.75% in 2003 in an effort to stave off recession, will end 2004 no higher than 4.75%, according to BMI Inc.'s core forecast. The problem is that any change in monetary policy takes more than a year to filter through to the economy, and raising interest rates sharply now would do nothing to alleviate the inflation currently present in the system.

The Bangko Sentral ng Pilipinas, the central bank, left interest rates on hold at its latest policy meeting on June 3. The bank last changed rates in July 2003, when a 0.25 percentage point cut took its key overnight borrowing and lending rates to a decade-low of 6.75% and 9.00% respectively. But higher inflation, fuelled by the rising cost of crude oil, is a cause for concern. Transport regulators have approved the first hike in transport fares for four years.

At the start of 2004, BMI contrasted the diverging paths likely to be taken by the Czech Republic and Hungarian central banks over the course of the year. Whereas people argued that Budapest would be able to ease its monetary stance — as already illustrated by cumulative interest rate cuts of some 100bps this year, to 11.5% at present— we forecast that the Czech authorities would be hiking interest rates from H204. In this respect, industrial production growth slowed to 5.4% y-o-y in the first two months of the year, from 6.3% y-o-y in Q403, significantly below the double digit rates in Hungary and Poland.

The article discusses the developments in the stockmarket, interest and currency rates in Switzerland. A new low, shadowing developments of other international stockmarkets was revealed in the Swiss Performance Index on October 9, 2002, while the appreciation of the Swiss franc has worked in favor of investors in Swiss shares. Moreover, the Swiss National Bank's continued cutting of interest rates is affecting the domestic growth prospects and volatility in stockmarkets.

The article reports that Power Grid Corp. of India has informed the Bombay Stock Exchange (BSE) about Payment of Interest and Redemption amount.