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The work argues that many of the issues that have figured in interest rate policy discussions in the context of less developed countries are false, arising partly from terminological nuances, but largely from incorrect premises and approaches. As a result, there has been a fair amount of needless obfuscation in the design and pursuit of interest rate policies, and misdirection of effort in empirical research. An attempt is therefore made to unravel the various issues involved in the logical basis of the interest rate policies pursued in less developed countries, and after winnowing the false ones, to synthesise them in a consistent and cohesive fashion so that the real import of such policies emerges more clearly. JEL: E43, E52, E63

In the present paper fundamental changes in monetary policy strategy, especially in leading industrialized countries, from concentrating on development of the quantity of money to focusing strictly on developments of interest rates and interest rate levels is analysed in the case of the European Central Bank. The goal of research is to show that this change in monetary policy is one important reason for expansions of the European debt crisis since 2010. Within this new monetary policy regime, interest rate levels on the one hand and the transmission of interest rate policy measures to the interest rates of the other financial markets on the other hand, have become a very important role in central banking policies of today. For example to guarantee a sure and strict transmission of interest rate policy measures, which have its starting point on the short-term money market, and which should radiate to long-term interest rates on the capital market the ECB, if necessary, uses outright monetary transactions in secondary markets for sovereign bonds in the euro area. The main reason for acting in that manner is to avoid rising of long-term interest rates and to guarantee low levels of interest rate in the sovereign bonds markets. It is argued in the present paper that in focusing to guarantee low interest rate levels especially to overcome economic crisis you can find one important reason for expansions of the European debt crisis. This is so, because in view of current European economic policy rising interest rates in the European bonds markets above a level of 6 or 7 percent have become an unmistakeable proof of a severe debt problem.

Inequality has been largely ignored in the literature and practice of monetary policy, but is gaining more attention recently. Here, we exclusively focus on the impact of unconventional monetary policy (UMP) on inequality. We look at how the recent UMP in Japan affected inequality, using household survey data. Our vector auto regression (VAR) results show that UMP widened income inequality after 2008Q3 as the Bank of Japan (BoJ) resumed its zero-interest rate policy and reinstated UMP. This is largely due to the portfolio channel. To the best of our knowledge, this is the first study to empirically analyse the distributional impact of UMP. Japan’s extensive experience with UMP may hold important policy implications for other countries. [ABSTRACT FROM PUBLISHER]

The Association of South East Asian Nations (ASEAN) is among several regional blocs that have received praise from economists for making significant progress towards developing intra- and extra-regional economic relationships. However, opinions differ over the extent of ASEAN's potential for integration. This paper reviews the performance of and prospects for the group's intra- and extra-regional integration. It also reviews the performance of individual members in order to assess whether ASEAN integration could potentially lead to a monetary union in the future. We provide an overview of trade performance and a comparison of three macroeconomic variables: inflation; interest; and exchange rates. We observe that ASEAN members are in a favourable position to form a strong economic zone in the near future, but adopting a common monetary policy is less plausible. [ABSTRACT FROM AUTHOR]

In modern monetary policy nearly every central bank has an output driven task to fulfil. This could be price stability or the attainment of a stable inflation rate. In order to establish whether the monetary policy has reached its goals, it is possible to use monetary rules ex post as a benchmark. For this we will use the Taylor rule and interest rate to describe the European interest rate policy from 1999 to 2009. The main result is that from 2000 till 2008 the Taylor interest rate is much higher than its benchmarks EONIA and EURIBOR. Only for the year 1999 a neutral interest rate emerges. Furthermore the paper shows that the European interest rate policy missed its Taylor interest rate benchmark every time except 1999. So it is possible to state that the European interest rate policy was too expansive.

In the present article a recently observable very expansive monetary policy not only in the Eurosystem but also in nearly all leading industrialized countries is analysed as a result of a fundamental change in monetary policy strategy. The goal of research is to show that this fundamental change in monetary policy from concentrating on developments of the quantity of money to focusing strictly on developments of interest rates and interest rate levels is the most important reason for recent most expansive monetary policy, which is described best by a strategy of lowest interest rate policy and which deals with interest rate levels of zero or near zero percent. It is argued in the present article too, that a lasting period of very low interest rates is connected with severe dangers or disadvantages not only for special institutions of the companies sector and for private household savings, but also for investments in real capital and for solving debt crises, because it gives wrong economic incentives. In addition such an expansive monetary policy forced investors to look at investments with higher risks, to get a better expected return on investment, which could be the reason for new financial instabilities. At least the outright monetary transactions programme of the ECB is discussed. This OMT-Programme could be seen as a proper monetary policy instrument of the recent interest rate policy strategy, especially to transmit central banks key interest rate changes to all segments of the financial markets in all member countries of the Euro area. But there are very different or even conflicting interpretations of the sense of that programme between ECB and Deutsche Bundesbank. This strong conflict can be discussed as fundamental difference of how monetary policy should act in recent days. [ABSTRACT FROM AUTHOR]

The study examined the interest rate deregulation and demand for money in Nigeria (2000-2011). The objective of the study is to enable the researcher to ascertain the functional relationship between demand for money and interest rate in Nigeria. Also, the significant impact of interest rate on the level of money stock in Nigeria. Relevant literatures were reviewed as well as some conceptual and empirical discourse on interest rate and money demand. The ex-post-facto research design was adopted and computerized regression analysis was employed as the statistical tools. The findings from the study showed that the functional relationship between demand for money and interest rate is not statically significant. Also, interest rate has no significant impact on the level of money stock in Nigeria. Based on the findings, the study recommend amongst others that government through the monetary authority should implement policies that would enhance interest rate and demand for money at least to the preferred sectors which will in turn boost the financial system of the Nigerian economy. [ABSTRACT FROM AUTHOR]

The article discusses U.S. monetary policy between 1982 and 2012 and the implications for U.S. monetary policy for the future. It examines the differences in monetary policy in the 1980s and 1990s and the early 21st century, the policies of the U.S. Federal Reserve System during the financial crisis of 2008-2009, and reserve balances at Federal Reserve banks. The article also discusses the purchase of mortgage backed securities (MBS), the nominal interest rate, and the concept of forward guidance procedures.

Usury ceilings seem indefensible. Their opponents insist these caps harm the consumers they are intended to help. Low ceilings are said to prevent the least advantaged agents from accessing legal credit and drive them into the black market, where prices are higher and collection methods are harsher. But in this paper, I challenge these arguments and show that the benefits of interest-rate limitations in the most expensive credit markets clearly outweigh the costs. The test case is payday lending. Deregulated pricing in this market produces negative externalities that justify usury restrictions. Unless prices are capped, the more solvent majority of borrowers is compelled to cross-subsidize the least solvent debtors, who have a high rate of default. Rationing the riskiest debtors out of this market by means of a moderate usury cap puts an end to this unfairness and produces fewer bad consequences than the advocates of deregulated pricing recognize. I argue that only an extreme principle like maximizing the minimum could justify a free market in payday credit. [ABSTRACT FROM AUTHOR]

Following the intensification of the international financial crisis in autumn 2008, the functioning of the financial system was seriously hindered. Central banks around the world responded firmly by lowering their key interest rates to historically low levels. As financial conditions did not improve as hoped and the real economy was still unstable, revealing therefore the limits of mainstream monetary policy, many monetary authorities employed several unconventional measures. The scope of this paper is to investigate two important approaches of classifying "unorthodox" monetary policies and review several measures undertook by central banks, highlighting the impact and some of the possible risks to the contemporary economy. [ABSTRACT FROM AUTHOR]

This article analyses a recent decision by the German Federal Court of Justice in the field of investor protection. At first sight it seems as if the Court held on to a model of investor empowerment by means of informational duties. However, a closer look at the reasoning of the Court reveals a tendency towards heavier intervention in the field of financial advice, oriented towards the regulation of product design. In light of this new dimension of investor protection, the article critically analyses the Federal Court of Justice's use of the disclosure-based investor protection regime. [ABSTRACT FROM AUTHOR]

The article examines the short-term emergency lending regulatory frameworks in the U.S. and Canada. Topics discussed include the misleading and abuse practices of short-term emergency lending institutions and the need to protect low-income consumers from these practices and enforce a consumer protection regime that includes a federal interest rate ceiling, an industry code of best practices and a complementary enforcement scheme.

This note provides an explanation of the relationship between the nominal and real lending rates of the commercial banks and central bank policy rates. It suggests that "a real interest rate rule" on the part of the central bank would influence the real lending rate perceived by commercial banks and their borrowers, and could affect the real economy via this route. There is a negative theoretical relationship between the inflation adjusted "real" lending rate and the rate of inflation itself. [ABSTRACT FROM AUTHOR]

This article examines the impact of financial repression on economic growth during China's reform period. The aggregate financial repression index suggests that China's financial liberalization has been steady but gradual. Empirical estimation confirms that, on average, repressive policies helped economic growth, thanks probably to the prudent liberalization approach. But the impact turned from positive in the 1980s and the 1990s to negative in the 2000s, suggesting rising efficiency losses in recent years. Specifically, we find that lending to the state sector, interest rate regulation and capital account control were the main factors constraining China's economic growth in recent years. [ABSTRACT FROM AUTHOR]

The article offers information on the financial liberalisation and banking regulation of Tunisia as compared with the Basel II principles. It states that as part of the liberalisation, the government decontrol the interest rates and deregulate the banking industry. It mentions that Central Bank of Tunisia handles management regulation. It states that because of the high level of nonperforming loans, banking regulation must be tightened.

A fin de investigar empíricamente la eficacia de la política de tasas de interés de los bancos centrales de las Bahamas y Barbados para influir en las tasas sobre los préstamos de los bancos comerciales, se analizaron los datos trimestrales entre enero de 1995 y abril de 2007 mediante un modelo de corrección de errores. En Barbados las tasas de los préstamos de los bancos comerciales no responden a corto plazo ante los cambios de la tasa de interés de política monetaria del banco central, pero a largo plazo presentan una respuesta absoluta. En promedio, los efectos de los cambios en la tasa de política monetaria del banco central tardan entre cuatro y seis trimestres en transmitirse completamente a la economía mediante ajustes. En las Bahamas, la reacción a estos cambios es absoluta a corto y largo plazo, debido al bajo costo de ajuste unido a la persuasión moral. [ABSTRACT FROM AUTHOR]

Over the past two years the Federal Reserve has engaged in large-scale asset purchases (LSAPs), often grouped under the heading of "quantitative easing," as an alternative means of stimulating the economy when policy rates are at their zero lower bound. Theoretical and empirical research shows how this policy may lower long-term interest rates, and financial market data suggest that the initial launch of LSAPs had an effect on expectations about future Fed policy. [ABSTRACT FROM AUTHOR]

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I investigate how monetary policy can avoid a deflationary slump when policy rates are near zero by studying interest rate policy during Japan's “Lost Decade.” Estimation results suggest that the Bank of Japan's interest rate policy fits a conventional reaction function with an inflation target near 1%. The disapointing economic performance thus seems primarily due to adverse economic shocks rather than extraordinary policy errors. Also, counterfactual policy simulations suggest that simply raising the inflation target would not have substantially improved performance. However, price-level targeting or combining a higher inflation target with an aggressive output response would have achieved superior stabilization results. [ABSTRACT FROM AUTHOR]

Corporations that can either overcome or repeal the regulations that control them should be replaced, not re-regulated. Their replacements should include municipally-owned and electric-powered mass transit systems and worker-owned cooperatives producing the needed equipment and rolling stock. We also need depositor-owned mutual banks and a democratically-controlled development bank. We need a Treasury that holds the Fed democratically accountable for interest rates and foreign exchange rates. We need a network of municipally-owned utilities connected by a power grid owned and operated by the Federal government. These are just some of the progressive alternatives to re-regulation. [ABSTRACT FROM AUTHOR]

Este artigo analisa o gerenciamento da dívida pública no Brasil considerando os principais modelos teóricos recentes. Ademais, examina o possível efeito sobre a taxa de juros básica devido à estratégia adotada pelo Tesouro Nacional a partir de 1999. Os resultados indicam que a estratégia adotada pelo Brasil para a gestão da dívida pública foi baseada nas recomendações de Calvo e Guidotti (1990). Também foi observado que o prazo médio da dívida pública, a parcela de títulos indexados ao indicador do Sistema Especial de Liquidação e Custódia (SELIC) e a razão dívida pública/produto interno bruto, têm um papel significativo na determinação da taxa de juros básica. É importante notar que os esforços do governo para aumentar o prazo da dívida pública e atenuar efeitos perniciosos sobre a taxa de juros não devem ser desprezados. [ABSTRACT FROM AUTHOR]

In modern monetary policy nearly every central bank has an output driven task to fulfil. This could be price stability or the attainment of a stable inflation rate. In order to establish whether the monetary policy has reached its goals, it is possible to use monetary rules ex post as a benchmark. For this we will use the Taylor rule and interest rate to describe the European interest rate policy from 1999 to 2009. The main result is that from 2000 till 2008 the Taylor interest rate is much higher than its benchmarks EONIA and EURIBOR. Only for the year 1999 a neutral interest rate emerges. Furthermore the paper shows that the European interest rate policy missed its Taylor interest rate benchmark every time except 1999. So it is possible to state that the European interest rate policy was too expansive. [ABSTRACT FROM AUTHOR]

This paper focuses on two mechanisms under which interest-rate feed-back rules induce local indeterminacy in a closed economy with capital accumulation: arbitrage activity and the pricing channel. It shows that constrained investment, in the sense that it requires liquidity or that adjustment to the stock of capital is costly, is enough to induce indeterminacy if monetary policy follows a strictly passive interest rate rule. Determinacy of equilibrium is ensured under an active monetary policy stance. These results change when production externalities are introduced into the model so as to mimic the pricing channel in New Keynesian models. In this case, a policy stance that ensures determinacy is either active or strictly passive. In view of the contradicting results for the passive stance and the similar results for the active stance it is recommended that central banks act according to the active stance. [ABSTRACT FROM AUTHOR]

El artículo presenta un análisis de la política monetaria del Perú desde el 2002, enfocando en la curva de rendimiento como una herramienta para determinar y predecir la inflación, las tasas de interés, y los movimientos de la economía nacional. En el análisis monetario de las políticas del banco central del Perú, se examinan las expectativas de tasas de interés futuras, de inflación, y de depreciación, entre otras.

El artículo presenta un estudio de la volatilidad de la tasa de interés y del tipo de cambio a causa de políticas monetarias en México de 1998 a 2008. Enfoca en las causas y los efectos de cuando el Banco de México pasó la meta de reservas no prestadas, llamado el Corto, en el 2004 que marcó una transición en la economía mexicana.

Current economic policy upgrades monetary policy and downgrades fiscal policy. Monetary policy involves the manipulation of the central bank interest rate, with the specific objective of achieving the main goal of monetary policy, which is, in most cases, the inflation rate. Fiscal policy should not be used as an instrument of stabilization policy. This raises two issues. The first is the theoretical underpinnings of this mode of economic policy. The second is the extent the quantitative impact of monetary and fiscal policy in the real world adhere to the principles set out by theory. Both aspects are investigated in this paper. We summarize results drawn from the euro area, the United States, and the United Kingdom. Two important conclusions emerge: the empirical results point to a relatively weak effect of interest rate changes on inflation. Also, monetary policy can have long-run effects on real magnitudes. Fiscal policy does have strong effects after all. [ABSTRACT FROM AUTHOR]

We consider a consistent pricing model of government bonds, interest-rate swaps and basis swaps in one currency within the no-arbitrage framework. To this end, we propose a three yield-curve model, one for discounting cash flows, one for calculating LIBOR deposit rates and one for calculating coupon rates of government bonds. The derivation of the yield curves from observed data is presented, and the option prices on a swap or a government bond are studied. A one-factor quadratic Gaussian model is proposed as a specific model, and is shown to provide a very good fit to the current Japanese low-interest-rate environment. [ABSTRACT FROM AUTHOR]

This paper evaluates the predictive power of different information sets for the European Central Bank (ECB) interest-rate-setting behaviour. We employ an ordered probit model, i.e. a limited dependent variable framework, to take into account the discreteness displayed by policy rate changes. The results show that the forecasting ability of standard Taylor-type variables, such as inflation and output gap, is fairly low both in-sample and out-of-sample, and is comparable to the performance of the random walk model. Instead by using broader information sets that include measures of core inflation, exchange rates, monetary aggregates and financial conditions, the accuracy of the forecasts about ECB future actions substantially improves. Moreover, ECB rhetoric considerably contributes to a better understanding of its policy reaction function. Finally, we find that that the ECB has been fairly successful in educating the public to anticipate the overall future direction of its monetary policy, but has been less successful in signalling the exact timing of rate changes. [ABSTRACT FROM AUTHOR]

In this paper, we examine the impact of interest-rate reforms on financial deepening in Botswana, one of Africa's economic development success stories. We employ three proxies of financial deepening against deposit rate, a proxy for interest-rate reforms. The financial deepening in this study is defined as the increase in the relative size and role of the financial system in an economy. The empirical results of our study show that the impact of interest-rate reforms on financial deepening is sensitive to the variable used as a proxy for financial deepening. When the ratio of bank deposits to GDP (BD/GDP) is used as a proxy for financial deepening, the interest-rate reforms impact positively on the level of financial deepening. However, when the monetization variable (M2/GDP) and the ratio of the private sector credit to GDP (DCP/GDP) are used, the coefficient of the deposit rate in the financial deepening model turns out to be statistically insignificant. Overall, our results show that the positive impact of interest-rate reforms on financial deepening in Botswana is minimal. This outcome, though contrary to our expectations, is not surprising given the high level of population dependency in Botswana. Our results show that there is a strong negative relationship between the dependency ratio and financial deepening in Botswana. [ABSTRACT FROM AUTHOR]

This article analyzes present value costs under stochastic interest rates and investigates the effect of interest rate uncertainty on the replacement investment decision that a firm must make when a piece of equipment becomes obsolete and needs replacement with either short- or long-lived equipment. We consider the replacement problem under stochastic interest rates in a CIR economy (Cox, Ingersoll, and Ross 1985a,b). Depending on the interest rate levels, interest rate volatility and the optionality to switch between durable and expendable assets at each renewal time, managers may prefer to invest in long-lived but more expensive assets instead of short-lived but less costly assets and vice versa. [ABSTRACT FROM AUTHOR]

The article discusses the U.S. financial crisis, examining the causes of the collapse of the U.S. housing market. The author states that decreasing housing prices were the result of the U.S. government's unanchored fiat monetary system that was connected to a restricted financial system. The financial crisis was started by the Federal Reserve's unusual policy moves and federal regulatory interventions, the author states. Other topics include distorted interest rates and asset prices and U.S. monetary policy which the author believes created unsustainable mortgage financing.

This paper aims to demonstrate that the insurance industry -especially oligopolistic companies and those which belong to financial groups -benefited from the economic crisis situation of the last 25 years. This was possible due to the confluence of several factors: 1) deregulation policies -the opening and privatization process that favored the participation in and control of mainly foreign, big capital -in the insurance market; 2) fiscal policies -including the contraction of public spending and the sale of state-owned corporations, as well as high interest rate monetary policies, accompanied by the overvaluation of the Mexican peso -precipitated two phenomena in the insurance industry: the orientation of insurance companies towards capital markets in order to negotiate securities in view of the domestic market's contraction, and greater competition and devaluation of companies to be acquired by foreign and national oligopolistic capital, and 3) the 1994-1995 crisis, which led to an accelerated process of transfer of the control and ownership of operating insurance corporations: from the concentration and domination of national capital to the control of foreign capital. [ABSTRACT FROM AUTHOR]

Are equity markets just another facet of global finance, or are they unique in their responses to—and influences on—government policies and institutions? Recent work has explored the impact of political factors on bond market behavior and foreign direct investment, but little attention has been paid to stock markets. On the basis of the particular concerns of equity investors, we hypothesize a positive association between stock-market valuations and levels of democracy, shareholder rights, legal traditions, and capital-account liberalization, a negative association with real interest rates, and no association with fiscal deficits or surpluses. We assess our expectations by analyzing the political and institutional determinants of aggregate price-to-earnings ratios for a sample of up to 37 countries from 1985 to 2004, using both cross-sectional and time-series cross-sectional analyses. We find support for most, but not all, of our hypotheses. Our findings suggest that we must disaggregate the effects of different asset markets to understand the impact of economic globalization on government policies. [ABSTRACT FROM AUTHOR]

In the post-reform period, the monetary policy of India has been undergoing various transformations. The emphasis is shifting from conventional instruments of price and quantity control to a more sophisticated route of monetary transmission. Using the recent econometric methodology of cointegrated vector autoregression with generalized restrictions, this study has attempted to examine whether monetary policy in India does work through interest rates in the post-reform period. The long-run relationship and the short-run dynamics suggest an important role for the interest rate. [ABSTRACT FROM AUTHOR]

This paper considers the nature and role of monetary policy when money is modelled as credit money endogenously created within the private sector. There are currently two schools of thought that view money as endogenous: one has been labelled the ‘new consensus’ in macroeconomics, and the other is the Keynesian endogenous (bank) money approach. The paper first explores the analysis of monetary policy in the ‘new consensus’ macroeconomic model, followed by an examination of the effectiveness of monetary policy in that analysis. The Keynesian view of endogenous money is discussed, and the role for monetary policy in a Keynesian endogenous monetary policy analysis is considered, including discussion of the objectives and instruments of monetary policy. [ABSTRACT FROM AUTHOR]

This article presents an overview of this issue in relation to the periodical's twentieth anniversary. The author discusses the organization of a anniversary panel in London, England to mark the occasion, and to review articles from the history of the periodical focusing on economic-policy development during these 20 years. The article also provides an introduction to other articles presented in this issue, including one concerning the evolution of exchange-rate management, the effects of government debts on interest rates, and higher education reform in Europe.

Abstract. This paper examines the role of financial market imperfections for output reactions to nominal interest rate shocks. Empirical evidence shows a hump-shaped impulse response function of output and suggests that credit supply co-moves with output. A monetary business cycle model with staggered price setting is presented where the firms' outlays for capital and labor must be covered by the sum of net worth of entrepreneurs and loans in the form of debt contracts. These properties are shown to generate a hump-shaped impulse response of output, which takes on the smooth and persistent appearance of the empirical output response when nominal wages are set in a staggered way, too. [ABSTRACT FROM AUTHOR]