Prediction of the economic activity from the short and long-term interest rate differential: new evidences in Chile and the United States of America cases

The purpose of this work is to verify the stability of the relationship between real activity and interest rate spread. The test is based on Chen (1988) and Osorio and Galea (2006). The analysis is applied to Chile and the United States, from 1980 to 1999. In general, in both cases the relationship was statistically significant in early 80s, but a break point is found in both countries during that decades, suggesting that the relationship depends on the monetary rule follow by the Central Bank.

The differential impact of monetary policy announcements and explanatory minutes releases on the Australian interest rate futures market

Unlike US and Continental European jurisdictions, Australian monetary policy announcements are not followed promptly by projections materials or comprehensive summaries that explain the decision process. This information is disclosed 2 weeks later when the explanatory minutes of the Reserve Bank board meeting are released. This paper is the first study to exploit the features of the Australian monetary policy environment in order to examine the differential impact of monetary policy announcements and explanatory statements on the Australian interest rate futures market. We find that both monetary policy announcements and explanatory minutes releases have a significant impact on the implied yield and volatility of Australian interest rate futures contracts. When the differential impact of these announcements is examined using the full sample, no statistically significant difference is found. However, when the sample is partitioned based on stable periods and the Global Financial Crisis, a differential impact is evident. Further, contrary to the findings of Kim and Nguyen (2008), Lu et al. (2009), and Smales (2012a), the response along the yield curve, is found to be indifferent between the short and medium terms.

Derivatív pénzügyi termékek árdinamikája és az új típusú kamatlábmodellek (Interest rate models and the price processes of financial derivatives)

Ennek a cikknek az a célja, hogy áttekintést adjon annak a folyamatnak néhány főbb állomásáról, amit Black, Scholes és Merton opcióárazásról írt cikkei indítottak el a 70-es évek elején, és ami egyszerre forradalmasította a fejlett nyugati pénzügyi piacokat és a pénzügyi elméletet. / === / This review article compares the development of financial theory within and outside Hungary in the last three decades starting with the Black-Scholes revolution. Problems like the term structure of interest rate volatilities which is in the focus of many research internationally has not received the proper attention among the Hungarian economists. The article gives an overview of no-arbitrage pricing, the partial differential equation approach and the related numerical techniques, like the lattice methods in pricing financial derivatives. The relevant concepts of the martingal approach are overviewed. There is a special focus on the HJM framework of the interest rate development. The idea that the volatility and the correlation can be traded is a new horizon to the Hungarian capital market.

National consumer credit laws, financial exclusion and interest rate caps : The case for diversity within a centralised framework

Australia is going through a major reform of consumer credit regulation, with the implementation of a proposal to transfer regulatory responsibility from the State and Territory Governments to the Commonwealth Government. While the broad policy approach is supported, the reform process has missed a significant opportunity to engage directly with issues of financial exclusion and with the potential role of regulation to reduce financial exclusion. The imposition of an interest rate cap can limit the impact of financial exclusion. However, the future of the existing interest rate caps is uncertain, given the diversity of approaches, and the heated debate that surrounds this issue. In the absence of support for regulatory initiatives to increase the availability of low cost, small loans, permitting regulatory diversity on this issue of interest rate caps, within an otherwise centralised regulatory framework., can minimise the impact of financial exclusion on consumers.

Interest rate caps : protection or paternalism

In a context where over-indebtedness and financial exclusion have been recognised as problems in Australia, it is undesirable that those who can least afford it, pay a high cost for short-term consumer credit. Evidence points to an increase in consumer debt in Australia and consequential over-indebtedness which has been shown to lead to a wide range of social problems.2 There is also evidence of financial exclusion, where consumers suffer a lack of access to mainstream financial services, and in Australia this is particularly the case with regard to access to safe and affordable credit.3 Financial exclusion can only exacerbate over-indebtedness, given that financially excluded, predominantly low income consumers , have been shown to turn to high cost credit to meet their short term credit needs. This is a problem that has been explored most recently in the Victorian Consumer Credit Review...

Structured products in the current low interest rate environment

Directed Research Internship

Spread trading strategy for intraday short term interest rate futures markets

Neste trabalho analisaram-se estratégias de spread calendário de contratos futuros de taxa de juros de curto prazo (STIR – Short Term Interest Rate) em operações de intraday trade. O spread calendário consiste na compra e venda simultânea de contratos de STIR com diferentes maturidades. Cada um dos contratos individualmente se comporta de forma aleatória e dificilmente previsível. No entanto, no longo prazo, pares de contratos podem apresentar um comportamento comum, com os desvios de curto prazo sendo corrigidos nos períodos seguintes. Se este comportamento comum for empiricamente confirmado, há a possibilidade de desenvolver uma estratégia rentável de trading. Para ser bem sucedida, esta estratégia depende da confirmação da existência de um equilíbrio de longo prazo entre os contratos e a definição do limite de spread mais adequado para a mudança de posições entre os contratos. Neste trabalho, foram estudadas amostras de 1304 observações de 5 diferentes séries de spread, coletadas a cada 10 minutos, durante um período de 1 mês. O equilíbrio de longo prazo entre os pares de contratos foi testado empiricamente por meio de modelos de cointegração. Quatro pares mostraram-se cointegrados. Para cada um destes, uma simulação permitiu a estimação de um limite que dispararia a troca de posições entre os contratos, maximizando os lucros. Uma simulação mostrou que a aplicação deste limite, levando em conta custos de comissão e risco de execução, permitiria obter um fluxo de caixa positivo e estável ao longo do tempo.

An empirical comparison of forward-rate and spot-rate models for valuing interest-rate options

Our main goal is to investigate the question of which interest-rate options valuation models are better suited to support the management of interest-rate risk. We use the German market to test seven spot-rate and forward-rate models with one and two factors for interest-rate warrants for the period from 1990 to 1993. We identify a one-factor forward-rate model and two spot-rate models with two faetors that are not significant1y outperformed by any of the other four models. Further rankings are possible if additional cri teria are applied.

Aggregate vs disaggregate data analysis: a paradox in the estimation of money demand function of Japan under the low interest rate policy

We investigate the issue of whether there was a stable money demand function for Japan in 1990's using both aggregate and disaggregate time series data. The aggregate data appears to support the contention that there was no stable money demand function. The disaggregate data shows that there was a stable money demand function. Neither was there any indication of the presence of liquidity trapo Possible sources of discrepancy are explored and the diametrically opposite results between the aggregate and disaggregate analysis are attributed to the neglected heterogeneity among micro units. We also conduct simulation analysis to show that when heterogeneity among micro units is present. The prediction of aggregate outcomes, using aggregate data is less accurate than the prediction based on micro equations. Moreover. policy evaluation based on aggregate data can be grossly misleading.

Bahamas and Barbados: empirical evidence of interest rate pass-through

Includes bibliography