Capitalisation of interest on short term loan “irreconcilable with what is right”

Higher than usual rates of interest charged by lenders on short term loans is not of itself considered to be a penalty or evidence of unconscionable conduct. These types of lenders often charge higher rates to take account of increased losses from higher than usual defaults by borrowers.

Term Structure and the Estimated Monetary Policy Rule in the Eurozone

Published as an article in: Spanish Economic Review, 2008, vol. 10, issue 4, pages 251-277.

Modeling Multivariate Interest Rates Using Time-Varying Copulas and Reducible Nonlinear Stochastic Differential Equations

We propose a new approach for modeling nonlinear multivariate interest rate processes based on time-varying copulas and reducible stochastic differential equations (SDEs). In the modeling of the marginal processes, we consider a class of nonlinear SDEs that are reducible to Ornstein--Uhlenbeck (OU) process or Cox, Ingersoll, and Ross (1985) (CIR) process. The reducibility is achieved via a nonlinear transformation function. The main advantage of this approach is that these SDEs can account for nonlinear features, observed in short-term interest rate series, while at the same time leading to exact discretization and closed-form likelihood functions. Although a rich set of specifications may be entertained, our exposition focuses on a couple of nonlinear constant elasticity volatility (CEV) processes, denoted as OU-CEV and CIR-CEV, respectively. These two processes encompass a number of existing models that have closed-form likelihood functions. The transition density, the conditional distribution function, and the steady-state density function are derived in closed form as well as the conditional and unconditional moments for both processes. In order to obtain a more flexible functional form over time, we allow the transformation function to be time varying. Results from our study of U.S. and UK short-term interest rates suggest that the new models outperform existing parametric models with closed-form likelihood functions. We also find the time-varying effects in the transformation functions statistically significant. To examine the joint behavior of interest rate series, we propose flexible nonlinear multivariate models by joining univariate nonlinear processes via appropriate copulas. We study the conditional dependence structure of the two rates using Patton (2006a) time-varying symmetrized Joe--Clayton copula. We find evidence of asymmetric dependence between the two rates, and that the level of dependence is positively related to the level of the two rates. (JEL: C13, C32, G12) Copyright The Author 2010. Published by Oxford University Press. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

Reducible Diffusions with Time-Varying Transformations with Application to Short-Term Interest Rates

Reducible diffusions (RDs) are nonlinear transformations of analytically solvable Basic Diffusions (BDs). Hence, by construction RDs are analytically tractable and flexible diffusion processes. Existing literature on RDs has mostly focused on time-homogeneous transformations, which to a significant extent fail to explore the full potential of RDs from both theoretical and practical points of view. In this paper, we propose flexible and economically justifiable time variations to the transformations of RDs. Concentrating on the Constant Elasticity Variance (CEV) RDs, we consider nonlinear dynamics for our time-varying transformations with both deterministic and stochastic designs. Such time variations can greatly enhance the flexibility of RDs while maintaining sufficient tractability of the resulting models. In the meantime, our modeling approach enjoys the benefits of classical inferential techniques such as the Maximum Likelihood (ML). Our application to the UK and the US short-term interest rates suggests that from an empirical point of view time-varying transformations are highly relevant and statistically significant. We expect that the proposed models can describe more truthfully the dynamic time-varying behavior of economic and financial variables and potentially improve out-of-sample forecasts significantly.

Lease maturity and initial rent: is there a term structure for UK commercial property leases?

This paper investigates the relationship between lease maturity and rent in commercial property. Over the last decade market-led changes to lease structures, the threat of government intervention and the associated emergence of the Codes of Practice for commercial leases have stimulated growing interest in pricing of commercial property leases. Seminal work by Grenadier (1995) derived a set of hypotheses about the pricing of different lease lengths in different market conditions. Whilst there is a compelling theoretical case for and a strong intuitive expectation of differential pricing of different lease maturities, to date the empirical evidence is inconclusive. Two Swedish studies have found mixed results (Gunnelin and Soderbergh 2003 and Englund et al 2003). In only half the cases is the null hypothesis that lease length has no effect rejected. In the UK, Crosby et al (2003) report counterintuitive results. In some markets, they find that short lease terms are associated with low rents, whilst in others they are associated with high rents. Drawing upon a substantial database of commercial lettings in central London (West End and City of London) over the last decade, we investigate the relationship between rent and lease maturity. In particular, we test whether a building quality variable omitted in previous studies provides empirical results that are more consistent with the theoretical and intuitive a priori expectations. It is found that initial leases rates are upward sloping with the lease term and that this relationship is constant over time.

Testing the expectations hypothesis for interest rate term structure : some Australian evidence

Many test results are found inconsistent with the expectations hypothesis of the term structure. The aim of this paper is to re-examine the expectations hypothesis of the term structure using the Australian interest rate data from 1969(7) to 1995(7). We start with the cointegration test on R_t, r_t, and S_t followed by the Granger causality test from S_t to ∇ r_t. Finally we carry out the VAR model of cross-equation restrictions test. Our findings show that there is no conclusive rejection of the expectations hypothesis of the term structure.

Formation of Exchange Rates on the Russian Market: Dynamics and Modelling

Galina Kovaleva. The Formation of the Exchange Rate on the Russian Market: Dynamics and Modelling. The Russian financial market is fast becoming one of the major sectors of the Russian economy. Assets have been increasing steadily, while new market segments and new financial market instruments have emerged. Kovaleva attempted to isolate the factors influencing exchange rates, determine patterns in the dynamic changes to the rouble/dollar exchange rate, construct models of the processes, and on the basis of these activities make forecasts. She studied the significance of economic indicators influencing the rouble/dollar exchange rate at different times, and developed multi-factor econometric models. In order to reveal the inner structure of the financial indicators and to work out ex-post forecasts for different time intervals, she carried out a series of calculations with the aim of constructing trend-cyclical (TC) and harmonic models, and Box and Jenkins models. She found that: 1. The Russian financial market is dependant on the rouble/dollar exchange rate. Its dynamics are formed under the influence of the short-term state treasury notes and government bonds markets, interbank loans, the rouble/DM exchange rate, the inflation rate, and the DM/dollar exchange rate. The exchange rate is influenced by sales on the Moscow Interbank Currency Exchange and the mechanism of those sales. 2. The TC model makes it possible to conduct an in-depth study of the structure of the processes and to make forecasts of the dynamic changes to currency indicators. 3. The Russian market is increasingly influenced by the world currency market and its prospects are of crucial interest for the world financial community.

Modeling long-term nominal interest rates /

"August 1995."

Are there non-linearities in short-term interest rates?

The present paper investigates the characteristics of short-term interest rates in several countries. We examine the importance of nonlinearities in the mean reversion and volatility of short-term interest rates. We examine various models that allow the conditional mean (drift) and conditional variance (diffusion) to be functions of the current short rate.We find that different markets require different models. In particular, we find evidence of nonlinear mean reversion in some of the countries that we examine, linear mean reversion in others and no mean reversion in some countries. For all countries we examine, there is strong evidence of the need for the volatility of interest rate changes to be highly sensitive to the level of the short-term interest rate. Out-of-sample forecasting performance of one-factor short rate models is poor, stemming from the inability of the models to accommodate jumps and discontinuities in the time series data.

Effects of an extreme temperature event on the behavior and age structure of an estuarine top predator, Carcharhinus leucas

The frequency of extreme environmental events is predicted to increase in the future. Understanding the short- and long-term impacts of these extreme events on large-bodied predators will provide insight into the spatial and temporal scales at which acute environmental disturbances in top-down processes may persist within and across ecosystems. Here, we use long-term studies of movements and age structure of an estuarine top predator—juvenile bull sharks Carcharhinus leucas—to identify the effects of an extreme ‘cold snap’ from 2 to 13 January 2010 over short (weeks) to intermediate (months) time scales. Juvenile bull sharks are typically year-round residents of the Shark River Estuary until they reach 3 to 5 yr of age. However, acoustic telemetry revealed that almost all sharks either permanently left the system or died during the cold snap. For 116 d after the cold snap, no sharks were detected in the system with telemetry or captured during longline sampling. Once sharks returned, both the size structure and abundance of the individuals present in the nursery had changed considerably. During 2010, individual longlines were 70% less likely to capture any sharks, and catch rates on successful longlines were 40% lower than during 2006−2009. Also, all sharks caught after the cold snap were young-of-the-year or neonates, suggesting that the majority of sharks in the estuary were new recruits and several cohorts had been largely lost from the nursery. The longer-term impacts of this change in bull shark abundance to the trophic dynamics of the estuary and the importance of episodic disturbances to bull shark population dynamics will require continued monitoring, but are of considerable interest because of the ecological roles of bull sharks within coastal estuaries and oceans.

The Structure and Short-Term Development of Finnish Industries in the 1920s and 1930s : An Input-output Approach

Tutkimuksen tavoitteena on tuottaa uutta tietoa Suomen kansantalouden rakenteesta ja lyhyen aikavälin kehityksestä 1920- ja 1930-luvulla. Tutkimus toteutettiin laatimalla kansantaloutta kuvaava panos-tuotostaulu vuodelle 1928 sekä sen laajennus, panos-tuotosmalli. Aineiston avulla kuvataan kansantalouden rakenteellisia riippuvuuksia, tuotannon avaintoimialoja sekä näiden vaikutusta kansantalouteen. Lisäksi tutkimuksessa tarkastellaan kansantalouden tuontiriippuvuutta sekä tuontitullien vaikutusta hintoihin 1930-luvun laman aikana. Tutkimuksen perusteella voitiin identifioida Suomen kansantalouden avaintoimialat vuonna 1928: maatalous, metsätalous, elintarviketeollisuus, puuteollisuus, paperiteollisuus ja rakennustoiminta. Erityisesti elintarviketeollisuuden vahva rooli kansantaloudessa oli kenties yllättävää, erityisesti kun huomioidaan kuinka vähän toimiala on saanut huomiota osakseen taloushistorian tutkimuksessa. Tutkimus osoitti, että Suomen vienti oli pääomavaltaisempaa kuin tuonti. Vaikka tämän tuloksen tulkinta on varauksellinen, tutkimus pystyi osoittamaan ja kvantifioimaan toimialojen työ- ja pääomapanoksen osuuden tuotoksesta yksityiskohtaisesti. Panos-tuotosmallilla arvioitiin puuteollisuuden, paperiteollisuuden ja rakennustoiminnan ajanjaksona 1928-32 tapahtuneen loppukäytön muutoksen vaikutusta kansantalouteen. Merkittävä havainto on, että rakennustoiminnan loppukäytön muutoksella oli erittäin suuri kasvua vähentävä vaikutus koko kansantaloudessa. Talonrakennusinvestointien romahtaminen aiheutti lähes 13 prosentin tuotannon laskun kansantaloudessa. Vaikutus oli jopa suurempi kuin puuteollisuuden viennin romahtamisen. Tulokset osoittavat toisaalta, että yksityisen kulutuksen merkitys kansantaloudelle oli erittäin vahva. Esimerkiksi puuteollisuuden viennin romahtaminen aiheutti yli 4 % tuotannon vähenemisen mutta huomioitaessa mallissa myös yksityisen kulutuksen väheneminen, oli kokonaisvaikutus yli 10 %. Yksityisen kulutuksen huomioiminen mallissa siis yli kaksinkertaisti toimialojen vaikutukset kansantalouteen. Tulokset vahvistivat aiemmissa tutkimuksissa esitettyjä johtopäätöksiä tullipolitiikasta ja osoittivat maatalouteen läheisesti liittyvän elintarviketeollisuuden olleen eniten suojeltu toimiala kansantaloudessa. Muut kotimarkkinoiden toimialat eivät kuitenkaan hyötyneet tullipolitiikasta lamakauden aikana. Panos-tuotoshintamallilla osoitettiin, ettei tullipolitiikka ollut niin onnistunutta kuin aikalaistutkimuksissa väitettiin, vaan tullit korkeintaan pystyivät hidastamaan hintojen alenemista. Tutkimuksen liitteenä esitetään kaikki keskeiset Suomen kansantaloutta vuonna 1928 kuvaavat tilastolliset taulukot, mukaan lukien käyttö- ja tarjontataulukot, panos-tuotostaulukot, panoskertoimet, Leontiefin käänteismatriisi sekä työ- ja pääomapanoskertoimet.

On the Informational Role of Term Structure in the U.S. Monetary Policy Rule

This paper uses a structural approach based on the indirect inference principle to estimate a standard version of the new Keynesian monetary (NKM) model augmented with term structure using both revised and real-time data. The estimation results show that the term spread and policy inertia are both important determinants of the U.S. estimated monetary policy rule whereas the persistence of shocks plays a small but significant role when revised and real-time data of output and inflation are both considered. More importantly, the relative importance of term spread and persistent shocks in the policy rule and the shock transmission mechanism drastically change when it is taken into account that real-time data are not well behaved.

Short-term effects of drawing water for connectivity of rivers and lakes on zooplankton community structure

During 28-29, September 2005, water was drawn from Hanjiang River and Houguan Lake to the Yangzi River via Sanjiao Lake and Nantaizi Lake in Wuhan in order to provide favorable conditions for ecosystem restoration. To evaluate the feasibility and validity of drawing water as a means of ecosystem restoration, zooplankton populations were studied 3 times (before, immediately after finishing and a month after drawing water) at seven locations from 27 Sept. 2005 to 2 Nov. 2005. Water quality in the lakes was mostly improved and zooplankton species richness decreased as soon as drawing water had finished but increased a month after drawing water. Zooplankton density and biomass was reduced in the lakes by drawing water but was increased at the entrance to Sanjiao Lake because of landform geometry change. Before drawing water, most species in Sanjiao Lake e.g., Brachionus sp. and Keratella sp. were tolerant of contamination. After drawing water oligotrophic-prone species such as Lecane ludwigii and Gastropus stylifer emerged. We conclude that drawing water could be important for improving water quality and favour ecosystem restoration. Dilution of nutrient concentrations may be an important role in the effect.