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Long-term Interest Rates (long-term + interest_rate)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	91%

Distribution within Business, Economics, Finance and Accounting

General & Introductory Finance & Investments	63%
General & Introductory Economics	17%

Selected Abstracts

On the Relationship Between Short- and Long-term Interest Rates,

INTERNATIONAL FINANCE, Issue 2 2004
Teruyoshi KobayashiArticle first published online: 13 DEC 200
This paper addresses issues regarding the relationship between short- and long-term interest rates. In the real world, an expansionary (contractionary) policy is normally followed by a fall (rise) in long-term rates. However, there exist exceptional cases in which short- and long-term rates move in opposite directions. This paper attempts to provide a formal explanation for such unusual phenomena using a variety of new Keynesian models. It turns out that the simultaneous occurrence of different economic shocks, to which the central bank should react, can explain this behaviour of long rates. [source]

A two-mean reverting-factor model of the term structure of interest rates

THE JOURNAL OF FUTURES MARKETS, Issue 11 2003
Manuel Moreno
This article presents a two-factor model of the term structure of interest rates. It is assumed that default-free discount bond prices are determined by the time to maturity and two factors, the long-term interest rate, and the spread (i.e., the difference) between the short-term (instantaneous) risk-free rate of interest and the long-term rate. Assuming that both factors follow a joint Ornstein-Uhlenbeck process, a general bond pricing equation is derived. Closed-form expressions for prices of bonds and interest rate derivatives are obtained. The analytical formula for derivatives is applied to price European options on discount bonds and more complex types of options. Finally, empirical evidence of the model's performance in comparison with an alternative two-factor (Vasicek-CIR) model is presented. The findings show that both models exhibit a similar behavior for the shortest maturities. However, importantly, the results demonstrate that modeling the volatility in the long-term rate process can help to fit the observed data, and can improve the prediction of the future movements in medium- and long-term interest rates. So it is not so clear which is the best model to be used. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23: 1075,1105, 2003 [source]

Macroeconomic Synchronization Between G3 Countries

GERMAN ECONOMIC REVIEW, Issue 2 2002
Amado Peiró
This paper studies the existence of a world business cycle by examining quarterly and annual comovements in production, prices and interest rates in the three main world economies: Germany, Japan and the US. In accordance with earlier studies, contemporaneous relationships clearly dominate short-term dynamics. The evidence indicates the existence of strong comovements in prices and long-term interest rates, and, to a lesser degree, in GDP and short-term interest rates. They are, however, rather unstable over time. [source]

On the Relationship Between Short- and Long-term Interest Rates,

Non-linear interest rate dynamics and forecasting: evidence for US and Australian interest rates

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 2 2009
David G. McMillan
Abstract Recent empirical finance research has suggested the potential for interest rate series to exhibit non-linear adjustment to equilibrium. This paper examines a variety of models designed to capture these effects and compares both their in-sample and out-of-sample performance with a linear alternative. Using short- and long-term interest rates we report evidence that a logistic smooth-transition error-correction model is able to best characterize the data and provide superior out-of-sample forecasts, especially for the short rate, over both linear and non-linear alternatives. This model suggests that market dynamics differ depending on whether the deviations from long-run equilibrium are above or below the threshold value. Copyright © 2007 John Wiley & Sons, Ltd. [source]

The forward rate unbiasedness hypothesis revisited

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 4 2002
W.A. Razzak
Abstract It is widely accepted that long-term interest rates are more suitable for testing the Uncovered Interest Rate Parity (UIP) than shorter-term rates. This paper shows that while using longer-term (1-year) forward exchange rates are also more suitable than shorter-term rates (1-month) for testing the forward exchange rate unbiasedness hypothesis (FRUH) the test is sensitive to the choice of the numeraire currency, i.e. the US dollar, the Deutsche mark (DM) or the Japanese yen. The FRUH holds in currencies measured in terms of the US dollar when a one-year forward contract is used instead of a one-month contract, but it does not hold when the DM and the yen are used as numeraire currencies. Copyright © 2002 John Wiley & Sons, Ltd. [source]

Volatility linkages among interest rates: implications for global monetary policy

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 3 2002
Nikiforos T. Laopodis
Abstract This paper explores the effects of a greater integration among major capital markets from 1984 to 2001 on the conduct of global monetary policy. The methodological design is a multivariate vector moving average GARCH model which is suitable for examining the nature of the volatility spillover mechanism of long-term interest rates across markets. The empirical findings indicate that there have been stronger linkages among major bond markets since 1990 at the volatility level. The more synchronized behaviour of long-term interest rates across countries is evidenced by the speed and persistence with which disturbances in a particular market transmit to other markets. Such volatile behaviour affects the conduct of global monetary policy which now has to be done interactively among the world's major players. Copyright © 2002 John Wiley & Sons, Ltd. [source]

Irreducibility and structural cointegrating relations: an application to the G-7 long-term interest rates

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 2 2001
Marco R. Barassi
C32; C51 Abstract In this paper we examine the causal linkages between the G-7 long-term interest rates by using a new technique, which enables the researcher to analyse relations between a set of I(1) series without imposing any identification conditions based on economic theory. Specifically, we apply the so-called Extended Davidson's Methodology (EDM), which is based on the innovative concept of an irreducible cointegrating (IC) vector, defined as a subset of a cointegrating relation that does not have any cointegrated subsets. Ranking the irreducible vectors according to the criterion of minimum variance allows us to distinguish between structural and solved relations. The empirical results provide support for the hypothesis that larger, more stable economies can achieve policy objectives more successfully by accommodating rather than driving other countries' policies. It appears that the driving force is Canada, which is linked to the USA, UK and France in three out of the four fundamental relations, and which is a reference point for the US, Italian and German rates, which are not cointegrated, seem to be determined by country-specific factors. Copyright © 2001 John Wiley & Sons, Ltd. [source]

Issues in Money Demand: The Case of Europe

JCMS: JOURNAL OF COMMON MARKET STUDIES, Issue 4 2004
Mike Artis
This article establishes a co-integration analysis for the euro area (sample period: 1983,2000), identifying three co-integrating vectors: one which can be labelled money demand (in which real M3 money balances are related to output, with unit elasticity, and the long rate of interest); another pertaining to the spread between the short and long rate of interest; and a third which is an output (IS) relationship in which output is related to the real rate of interest. Currency substitution terms affect the adjustment of real money balances though they do not enter the co-integration space. We use the aggregation procedure for historical Euroland data advocated by Beyer, Doornik and Hendry for application to aggregation of money, GDP and prices when exchange rates were varying. We make use of the German short- and long-term interest rates as benchmarks for own rate and opportunity cost variables. [source]

How Big Was the Effect of Budget Consolidation on the Australian Economy in the 1990s?

THE AUSTRALIAN ECONOMIC REVIEW, Issue 1 2006
Lei Lei Song
This article evaluates the effects of budget consolidation on the Australian economy in the 1990s. As the economy recovered from the 1991,92 recession, the need to improve the fiscal balance to lift national saving became the dominant influence on fiscal policy. The article argues that spending cuts by the Australian federal government announced in 1996 had immediate effects on financial markets, with reduced long-term interest rates of about 50 basis points in 1996,97. Using a modified version of the Treasury macroeconometric model of the Australian economy (TRYM), the article simulates the net macroeconomic effects of the expenditure cuts, fiscal consolidation and lower long-term interest rates. The article finds that the program of budget consolidation had a sizeable short- and medium-term impact on the economy, raising Gross Domestic Product by up to three-quarters of a percentage point and reducing unemployment by 0.3 percentage points over the next two to three years. [source]