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Rate Differentials (rate + differential)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	88%

Kinds of Rate Differentials

interest rate differential

Selected Abstracts

International real interest rate differentials, purchasing power parity and the behaviour of real exchange rates: the resolution of a conundrum

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 1 2004
Mark P. Taylor
Abstract According to one strand of the international finance literature, market efficiency implies that the real exchange rate follows a martingale process, in direct conflict with the long-run absolute purchasing power parity hypothesis, which requires a stationary real exchange rate process. This conflict between market efficiency and long-run PPP appears as something of a conundrum. We resolve this conundrum by relaxing the assumption of a constant real interest rate differential and analysing the vector equilibrium correction system linking prices and the exchange rate, and draw out the economic intuition of our result. Copyright © 2004 John Wiley & Sons, Ltd. [source]

Discrete policy interventions and rational forecast errors in foreign exchange markets: the uncovered interest parity hypothesis revisited

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 4 2002
Dimitris G. Kirikos
Abstract This paper combines policy response explanations of the uncovered interest parity puzzle with a time series approach that accounts for discrete central bank interventions. When monetary authorities manage the interest rate differential through an anti-inflationary policy rule, which allows for discrete shifts, then a stochastic segmented trends representation seems appropriate for the exchange rate and the interest rate differential series. In this setting, rational forecast errors are possible, and a test of the uncovered parity hypothesis, based on the cross-equation restrictions on a Markov switching process, suggests that the parity relationship cannot be rejected for three European currencies vis-à-vis the US dollar. Copyright © 2002 John Wiley & Sons, Ltd. [source]

Development of garnet porphyroblasts by multiple nucleation, coalescence and boundary misorientation-driven rotations

JOURNAL OF METAMORPHIC GEOLOGY, Issue 3 2001
R. Spiess
Abstract Two types of garnet porphyroblast occur in the Schneeberg Complex of the Italian Alps. Type 1 porphyroblasts form ellipsoidal pods with a centre consisting of unstrained quartz, decussate mica and small garnet grains, and a margin containing large garnet grains. Orientation contrast imaging using the scanning electron microscope shows that the larger marginal garnet grains comprise a number of orientation subdomains. Individual garnet grains without subdomains are small (< 50 µm), faceted and idioblastic, and have simple zoning profiles with Ca-rich cores and Ca-poor rims. Subdomains of larger garnet grains are similar in size to the individual, small garnet grains. Type 2 porphyroblasts comprise only ellipsoidal garnet, with small subdomains in the centre and larger subdomains at the margin. Each subdomain has its own Ca high, Ca dropping towards subdomain boundaries. Garnet grains, with or without subdomains, all have the same Ca-poor composition at rims in contact with other minerals. The compositional zonation patterns are best explained by simultaneous, multiple nucleation, followed by growth and amalgamation of individual garnet grains. The range of individual garnet and garnet subdomain sizes can be explained by a faster growth rate at the porphyroblast margin than in the centre. The difference between Type 1 and Type 2 porphyroblasts is probably related to the growth rate differential across the porphyroblast. Electron backscatter diffraction shows that small, individual garnet grains are randomly oriented. Large marginal garnet grains and subdomain-bearing garnet grains have a strong preferred orientation, clustering around a single garnet orientation. Misorientations across subdomain boundaries are small and misorientation axes are randomly oriented with respect to crystallographic orientations. The only explanation that fits the observational data is that individual garnet grains rotated towards coincident orientations once they came into contact with each other. This process was driven by the reduction of subdomain boundary energy associated with misorientation loss. Rotation of garnet grains was accommodated by diffusion in the subdomain boundary and diffusional creep and rigid body rotation of other minerals (quartz and mica) around the garnet. An analytical model, in which the kinetics of garnet rotation are controlled by the rheology of surrounding quartz, suggests that, at the conditions of metamorphism, the rotation required to give a strong preferred orientation can occur on a similar time-scale to that of porphyroblast growth. [source]

Regional Integration and the Co-ordination of Capital Income Taxation

ECONOMIC NOTES, Issue 1 2002
Valeria De Bonis
This paper addresses the question of the need for income tax harmonization in the context of regional integration. It analyses the international distortions and fiscal interdependence arising in the presence of tax rate differentials both under a theoretical and an empirical perspective, and with reference to actual experiences of harmonization attempts. Attention is also paid to the influence of the countries' size on the results, to the strategic behaviour of countries under different international taxations rules, and to the relationships with the countries excluded by the integration process. International tax uniformity does not appear to be the preferable solution, even if some form of concerted agreements might help in reducing inefficiencies deriving from taxation differentials. For instance, in the case of highly mobile factors, like financial capital, if the integrating countries apply the source principle and the interest rate is the same across them, the source-based tax rate on non residents must equal the residence country tax rate on residents. Such a rule would allow the countries to set autonomously their tax rate and, at the same time, eliminate cross-border effects. If there are more than two integrating countries, the tax rates on non residents should discriminate according to the internal tax rate of the residence country. (J.E.L.: H87, F20, H20). [source]

A currency index global capital asset pricing model

EUROPEAN FINANCIAL MANAGEMENT, Issue 1 2000
Thomas J. O'Brien
The application of an international capital asset pricing relationship with two factors, the global market portfolio and a currency index, is described and illustrated. The model and illustration help demonstrate a problem with the common practice of adjusting an asset's expected rate of return across currencies via nominal riskless interest rate differentials. [source]

Interest Rate Volatility Prior to Monetary Union under Alternative Pre-Switch Regimes

GERMAN ECONOMIC REVIEW, Issue 4 2003
Bernd Wilfling
Interest rate volatility; term structure; exchange rate arrangements; intervention policy; stochastic processes Abstract. The volatility of interest rates is relevant for many financial applications. Under realistic assumptions the term structure of interest rate differentials provides an important predictor of the term structure of interest rates. This paper derives the term structure of differentials in a situation in which two open economies plan to enter a monetary union in the future. Two systems of floating exchange rates prior to the union are considered, namely a free-float and a managed-float regime. The volatility processes of arbitrary-term differentials under the respective pre-switch arrangements are compared. The paper elaborates the singularity of extremely short-term (i.e. instantaneous) interest rates under extensive leaning-against-the-wind interventions and discusses policy issues. [source]

The real exchange rate,real interest rate relation: evidence from tests for symmetric and asymmetric threshold cointegration

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 2 2006
Robert Sollis
Abstract This paper investigates the existence of threshold cointegration between real exchange rates and real interest rate differentials. Unlike previous work, which generally fails to find evidence of a long-run relationship employing linear models, we employ tests of the null hypothesis of no cointegration derived from nonlinear bivariate models that allow for threshold cointegration under the alternative hypothesis. For six of the countries in our sample our analysis reveals some evidence of a nonlinear long-run relationship between real exchange rates and real interest rate differentials. Asymmetric mean reversion of the equilibrium error is found to be driven by the asymmetric short-run adjustment of the real exchange rate to dis-equilibrium. When threshold cointegration is found to exist, we find stronger mean reversion when the equilibrium error is negative relative to when it is positive. Copyright © 2006 John Wiley & Sons, Ltd. [source]

International real interest rate differentials, purchasing power parity and the behaviour of real exchange rates: the resolution of a conundrum

Model-free evaluation of directional predictability in foreign exchange markets

JOURNAL OF APPLIED ECONOMETRICS, Issue 5 2007
Jaehun Chung
We examine directional predictability in foreign exchange markets using a model-free statistical evaluation procedure. Based on a sample of foreign exchange spot rates and futures prices in six major currencies, we document strong evidence that the directions of foreign exchange returns are predictable not only by the past history of foreign exchange returns, but also the past history of interest rate differentials, suggesting that the latter can be a useful predictor of the directions of future foreign exchange rates. This evidence becomes stronger when the direction of larger changes is considered. We further document that despite the weak conditional mean dynamics of foreign exchange returns, directional predictability can be explained by strong dependence derived from higher-order conditional moments such as the volatility, skewness and kurtosis of past foreign exchange returns. Moreover, the conditional mean dynamics of interest rate differentials contributes significantly to directional predictability. We also examine the co-movements between two foreign exchange rates, particularly the co-movements of joint large changes. There exists strong evidence that the directions of joint changes are predictable using past foreign exchange returns and interest rate differentials. Furthermore, both individual currency returns and interest rate differentials are also useful in predicting the directions of joint changes. Several sources can explain this directional predictability of joint changes, including the level and volatility of underlying currency returns. Copyright © 2007 John Wiley & Sons, Ltd. [source]