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Research interest in the reaction of consumption to expected inflation has increased in recent years due to efforts by central banks to kick-start demand by steering inflation expectations. We contribute to this literature by analysing whether various components of households’ balance sheets determine how consumption reacts to expected inflation. Two channels in particular are conceivable: an increase in inflation expectations can raise consumption through direct increases in expected real wealth, e.g. for households with nominal financial liabilities. By affecting the real interest rate, expected inflation can interact with wealth if only those households can adapt their consumption to current real interest rates that are not budget-constrained or sufficiently liquid to shift funds between consumption and savings. We investigate these channels empirically using household-level information on balance sheets, durable consumption and inflation expectations from the Dutch Central Bank’s Household Survey. We find that investments in risky assets as well as net worth moderates the relation between expected inflation and durable spending decisions. The net worth effect is most pronounced for households with fixed interest rate mortgages.

We develop a model of monetary policy implementation in which banks bid for liquidity provided by the central bank in fixed rate auctions, considering liquidity injections and extractions as well as the impact of a subsequent interbank market. We derive the equilibrium demands of banks. We also investigate the impact the central bank auction has on the subsequent interbank market and find that while lending in the interbank market is reduced, the interest rates are moving in the desired direction. In the context of the interbank network, the impact of monetary policy on banks depends on their network locations, which may give rise to the prospects of distributional effects of monetary policy.

A Government Bond is a significant financial instrument for the state budget of Indonesia Government. It has become important and quite attractive among other financial instruments. Using BI 7-Day Repo Rate, Inflation, Money Supply, Indonesia Composite Index, and USD/IDR Exchange Rate as independent variables, this research has been done to determine Government Bond Yield. The research population is bond issued by Indonesia Government. The sampling is 10-years traded Government Bond fixed rate serries during 2016-2021 with 300 data collected which since 2020 Indonesia has been facing the Covid-19 pandemic that affected the global economy and financial markets. This research finds that Government Bond Yield positively affected by BI 7-Day Repo Rate, Inflation Rate, and USD/IDR Exchange Rate, while negatively affected by Money Supply, yet Indonesia Composite Index and Covid-19 pandemic has no effect on the Government Bond Yield.

This study aims to examine Blue Bonds as a guarantee issued by the issuer (government and companies) as alternative financing. Compared to ordinary bonds that are issued only to meet the issuer's funding needs, the transaction results in Blue Bonds will be used to support marine protection, fisheries governance, waste and water pollution management, and the restoration of marine ecosystems. In this study, the author uses the method literature review sourced from journals, books, reports from related ministries, international financial institutions such as the World Bank, and news from national and international media. The results of this study indicate that by issuing Blue Bonds, the government and companies will get more funds from bond investors. Investors will receive a return in the form of a coupon (fixed interest rate) from the issuer and pay according to schedule and the initial principal investment. Not only that, the government and companies will get a good reputation among investors and actively contribute to Indonesia's maritime development.

Mortgage finance is one source of capital that cannot be ruled out when it comes to housing finance. It has globally aided many countries in terms of housing finance. A country’s housing finance system can work effectively if there is/are mortgage repayment plan(s) that would ensure flexibility in repayment of mortgage loans and encourage supply and demand for mortgage products. The study sought to find out the types and nature of mortgage repayment plans in Ghana. All the financial institutions which were into mortgage banking constituted the sample. The result shows that fixed rate method is the commonest method used in Ghana and other repayment plans have evolved from the fixed rate repayment plan. Exchange rate fluctuations, high interest rates and high house prices result in higher initial monthly mortgage repayment using the fixed rate repayment plan. It is recommended that mortgage lending institutions should reduce their interest rate for low middle income earners in Ghana to qualify for mortgage.

The objective of the study is to analyze the whole range of issues related to attracting corporate financing in the debt capital market, including a description of structural features of financing leasing companies, such as the currency of financing, the use of financial instruments with a fixed interest rate, the need for matching assets and liabilities of the company, in terms of urgency. The article discusses the debt strategies of Russian leasing companies specializing in vehicles leasing. The organization of attracting funding by transport leasing companies is important for development of the entire transport industry in Russia. Bilateral bank loans, instruments of international development banks, syndicated loans and ruble bond issues are analyzed together with structural elements, investment and transactional features. Each financial instrument is followed by an example of implementation of a transaction. A comparison of the main financial instruments is followed by identification of the main advantages and disadvantages of their use for corporate financing. The methods used in the article are based on a structural approach to financing, which in turn is based on the correspondence of the financial instruments used and the goals for using cash (including replenishment of working capital, refinancing, capital costs). The main conclusion of the article is that for leasing companies the optimal financial solution is to create a capital structure by combining loans and bonds.

Financial institutions in transition economies maintain higher liquidity at the cost of economic growth. This study offers an alternative policy tool to achieve higher liquidity without compromising economic growth. We show that Zakat—an obligatory Islamic charity with a fixed rate of 2.5%—can be an alternative to the interest rate and that its use as a policy tool promotes economic growth. Instead of considering zakat as a fiscal tool—an alternative to tax—we present it as a monetary policy tool to substitute the interest rate. We provide a framework based on the endogenous growth model, which allows the use of Zakat as a tool to overcome liquidity constraints in transition economies. We also construct an index‐based varying zakat rate adjusted for economic fundamentals, such as economic growth, for each economy. We provide empirical evidence using system generalized method of moments (GMM) in a simultaneous equation model on a panel data of 38 countries for the period 1996–2015. The results show that zakat rate has a significantly positive impact on economic growth. Furthermore, as a policy tool, Zakat has a statistically significant positive impact on FDI and domestic investment, while reducing corruption (CR). The results are robust for various regions and income classifications in different transition economies. The overall findings corroborate that zakat can help achieve the dual objectives of enhanced liquidity and higher levels of economic growth.

The article investigates various tools of state support for the development of renewable energy. Special attention is paid to the price instruments of state support for the use of renewable energy sources (RES), including a significant analysis of the regulatory framework of the Republic of Kazakhstan as incentives. The authors analyzed the level of development of fixed rates for the supply of electricity in the Republic of Kazakhstan. The analysis revealed that fixed rates had and continue to have a significant positive impact on the increase in projects for renewable energy. Without the use of this tool in Kazakhstan, it would not have been possible to establish such large RES capacities. The article also deals with the auction system of pricing for the supply of electricity. According to the authors, through the introduction of the auction mechanism, the state selects the most effective RES projects and forms market competitive prices for electric energy produced by RES facilities.Keywords: renewable energy sources, fixed rate, auction priceJEL Classifications: Q21, Q28DOI: https://doi.org/10.32479/ijeep.8481

Why do residential mortgages carry a fixed or an adjustable interest rate? To answer this question we study unique data from 103 banks belonging to 73 different banking groups across twelve countries in the euro area. To explain the large cross-country and time variation observed, we distinguish between the conditions that determine the local demand for credit and the characteristics of banks that supply credit. As bank funding mostly occurs at the group level, we disentangle these two sets of factors by comparing the outcomes observed for the same banking group across the different countries. Local demand conditions dominate. In particular we find that the share of new loans with a fixed rate is larger when: (1) the historical volatility of inflation is lower, (2) the correlation between unemployment and the short-term interest rate is higher, (3) households' financial literacy is lower, and (4) the use of local mortgages to back covered bonds and mortgage-backed securities is more widespread.

Financial derivatives are, in the last forty years, the most important financial innovation that influence the creation of new, very deep and broad financial markets. Their number is constantly increasing. There is a creation of new variants of existing derivative contracts and therefore the subjects have the opportunity to differently manage risk. Although their controversial legal nature, generally accepted view is that they were contracts. Swap is the youngest of all financial derivatives and represents a financial innovation of a later date. Market swaps recorded one of the fastest growth rate among global financial markets. Swap represents a private agreement between the two parties regarding exchange cash flow of the fixed time in the future in accordance with a predetermined pattern. The most common users of swaps are non-financial corporations, which want to receive variable, and to pay a fixed interest rate in order to limit interest expenses on bank loans or bond issues with variable interest rate, as well as banks, the governments of some supranational institutions such as the World Bank. In economic theory emphasized is the view that the comparative advantage is the basis for swaps functioning. Options are contracts in which one party has the exclusive right, while the other contracting party assumes only the obligation to buy or sell assets to which the option is created. In the nationa legislation the option contract is transferable standardized contract binding the buyer has the right to, including the payment obligation of the agreed premium on the day or days of maturity specified in the contract.

Mortgage lending is investigated as an effective tool for solving residential problems of the country’s population. The advantages and disadvantages of types of mortgage loans and models of the mortgage market are considered. The German (one-tier) model and the American (two-tier) model of the mortgage market are characterized. Conclusions have been made regarding the state of mortgage lending in European Union countries. The interest rates on mortgages in the countries of the world are analyzed and differences of mortgage lending are revealed in some of them. An estimation of the state of mortgage lending in Ukraine is given. The issue of state support to the mortgage sector is considered, which will facilitate the intensification of investment activity in this area and housing construction. The socio-economic motives of effective solution of the housing problem of residents of the Vinnytsia region were revealed, the analysis of the domestic normative-legal base and application of its norms in practice were carried out. Study of foreign experience has provided an opportunity to highlight different methods by which the state regulates relations in the process of mortgage lending. The peculiarities of provision of mortgage loans to the citizens of the country are highlighted and ways of further development of mortgage lending in Ukraine are elucidated, which can timely and adequately respond to external and internal challenges and threats, and strengthen the economic security of the state. The ways of further development of mortgage lending in Ukraine are suggested: development of the strategy of mortgage market development taking into account foreign experience, introduction of a mortgage insurance system, stimulating the population to mortgage and increasing the amount of social programs, creating of a quality bail on mortgage loans, securitization of the mortgage lending market, reduction of interest rates on mortgages etc.

We model consumer switching in retail electricity markets in New Zealand to identify important determinants of switching and estimate willingness to pay (WTP) for six non-price attributes of electricity services, namely, call waiting time, length of fixed rate contract, renewable energy, loyalty rewards, supplier ownership, and supplier type. The results provide important insights into residential consumer switching, which inform policy and enable suppliers to differentiate their products. The analysis is based on 2688 choice responses generated using an online choice experiment administered to a sample of 224 residential bill-payers. A latent class model is used to distinguish important determinants of switching and preference heterogeneity. We find that non-price attributes of electricity services are significant determinants of consumer switching. Three latent classes with distinct preferences for the attributes are identified. The first class (40%) is mainly concerned about power bills and would switch supplier to save at least NZ$125 per year in power bills, ceteris paribus. This value mainly captures the status quo effect or preference for incumbent traditional suppliers. The second class (46%) exhibits no status quo preference, values all attributes, and particularly dislikes entrants from other sectors. These suppliers must charge NZ$135 per year less than traditional suppliers for a 50% chance of attracting customers. The third class (14%) consists of captive and loyal customers who are unlikely to switch supplier for any realistic power bill savings.

Take Over is an action carried out by users of banking services to move payments or installments that are considered more profitable by users of banking services, where in this case the Customer, the transfer made in the form of transfer of services, payments and installments that customers consider more profitable for them Use. The transfer of payment itself involves two different banking institutions where installments or financing that run from one bank to another are transferred according to the provisions of each banking institution involved in it. The results of this study indicate that there are several differences in take-over systems implemented by Bank Negara Indonesia Syariah and Bank Rakyat Indonesia, including the contract agreement system that exists in these two banking institutions, where Bank Negara Indonesia Syariah uses a system with a sharia contract, namely the contract is a profit sharing contract, which they apply is a Murabahah contract and guidelines for the rules and procedures carried out at Take Over are the foundation of the DSN-MUI Fatwa and all provisions contained in the land, then at the Bank Rakyat Indonesia the contract used is in accordance with the provisions of the party banking itself the interest rate applied to the Contract is a Flat (fixed and Floating) interest rate or a fixed interest rate with the provisions of the installment table in accordance with the provisions of the Bank Rakyat Indonesia.

PurposeThis study aims to investigate the determinants of credit spreads in hotel loans securitized into commercial mortgage-backed securities (CMBS) between 2010 and 2015.Design/methodology/approachThe sample represents 1,579 US hotel fixed interest rate whole loans with an aggregate mortgage value of $26.6bn at loan origination. The relationship between credit spreads and property, loan and market characteristic is examined via multiple regression analysis. Additionally, the method of 2-stage least squares is used to control for endogeneity bias and identify the effect of the loan-to-value (LTV) ratio on credit spreads.FindingsThe multiple regression models explain 80 per cent of the variation in credit spreads and show a significant association of credit spreads with hotel and loan characteristics and market conditions. The findings indicate the debt coverage ratio to be the most important predictor of credit spreads followed by the loan maturity term, implied capitalization rate, LTV and yield curve. The results show the debt yield premium to be a stronger predictor of credit spreads than the debt yield ratio. The spread between the debt yield ratio and mortgage interest rate could be used in future research as an instrumental variable to identify the effect of the LTV on credit spreads.Research limitations/implicationsThis study is limited to the CMBS market and the period after the financial crisis. Additional limitations include sample selection bias, exclusion of multi-property loans and variable interest rate loans.Practical implicationsInterest rate increases in an expanding economy would likely increase the cost of borrowing for hotel owners leading to higher debt service payments and lower profitability. If an increase in interest rates is offset by a decline in credit spreads, hotel owners will still benefit from the ensuing stability in borrowing interest rates. The evidence also suggests that CMBS lenders favor select service and extended stay hotels. Owners and operators of these efficient and profitable hotels will likely obtain loans with lower credit spreads given their lower risk of default.Originality/valueThe current study provides evidence on the effects of loan and property characteristics in the pricing of loan risk and serves to inform CMBS market participants about the factors that drive credit spreads in hotel mortgage loans.

We examine the role of interest rate sensitivity for bank acquisitions. We expect that the interest rate sensitivity of a bank impacts the likelihood that it is acquired as the fair value of fixed rate loans increases (decrease) when interest rates decrease (increase) while book values remain unchanged. We find that banks with greater fixed-rate loan portfolios are more likely to be acquired in decreasing rate environments as bank acquirers seek to acquire fixed-rate assets with higher rates than can be achieved through new loan originations. Further, this effect is stronger for targets that cannot fully benefit from their fixed-rate portfolio due to either poor operating performance or a weaker information environment. In further tests we find positive returns for acquirers at the time the fair values of the target are reported. This study sheds light on how bank acquisitions are impacted by interest rate sensitivity in low-rate environments.

We develop a two-sector DSGE model with a detailed banking sector along the lines of Clerc et al (2015) to assess the impact of macroprudential tools (minimum, countercyclical and sectoral capital requirements, as well as a loan-to-value limit) on key macroeconomic and financial variables. The banking sector features residential mortgages and corporate lending subject to staggered interest rates a la Calvo (1983), which is motivated by the sluggish movement of lending rates due to fixed interest rate loan contracts. Other distortions in the model include limited liability, bankruptcy costs and penalty costs for deviations from regulatory capital. We estimate the model using Bayesian methods based on quarterly UK data over 1998 Q1–2016 Q2. Our contributions are threefold. We show that: (i) co-ordination of macroprudential tools may have a welfare-improving effect, (ii) macroprudential tools would have improved some macroeconomic indicators but, within our model, not have prevented the Global Financial Crisis, (iii) staggered interest rates may alter the transmission of macroprudential tools that work through interest rates.

Wholesale electricity prices can rapidly change in real-time, yet households usually face fixed-price electricity tariffs. Therefore, households that predominantly use energy when wholesale prices are low implicitly cross-subsidize households whose energy use is more weighted to high-price periods. We develop a decomposition method that maps substation data on electricity use to demographic data, identifying the household characteristics associated with this cross-subsidization in Victoria, Australia. We find that households in areas with low house prices and high levels of renters and elderly residents are the net funders of this implicit subsidy. These households currently have the lowest average energy cost for retailers to service, and may be the greatest immediate beneficiaries if real-time retail tariffs are made available to them. Finally, we present evidence that cross-subsidy magnitudes have been growing in recent years, coincident with rapid solar generator penetration.

We provide new insights into the business lending decisions of institutional investors in online credit markets by benchmarking their lending performance against that of retail investors.We find superior performance for loans financed by institutional investors, although large sized retail investor groups achieve equivalent performance. Lending decisions of institutional investors are not default risk minimising, and we quantify lending inefficiencies. From a platform perspective, we show that (i) the platform-administered loan allocation process is not biased in favour of institutional investors, (ii) institutional participation in the retail marketplace is not a distorting factor in loan performance, and (iii) the platform’s move to a fixed rate system had detrimental effects on loan outcomes for institutional investors. The superior loan performance achieved by institutional investors is confined to the auction period, when institutional investors had autonomy over setting interest rates.

This chapter provides an overview of the teachings and practices of the big religions – focusing on Judaism, Christianity and Islam – regarding the issue of capital profit. Capital profit can take many forms: interest on loans, dividends on shares, real estate rents, profit on merchandise or industrial capital, and entrepreneurial income. Loans carrying fixed interest rates were almost uniformly condemned as “usury” and prohibited by the old religions, including not only Judaism, Christianity and Islam but also Hinduism and Buddhism. The official churches, however, have abandoned their traditional antiusury positions in favour of a general plea for “fairness” and “justice” in economic transactions. The critique of usury as a factor not only of distributional injustice but also of economic instability could gain new relevance against the background.

The droughts of 2016–2017 caused nearly 25% reduction in harvest and nearly 30% reduction in the area cultivated in Sri Lanka. As a result, renewed attention is being paid to farmer income smoothing and adaptation strategies, among which insurance contends as one of the more viable solutions. This study assesses the willingness to pay for a climate-indexed agricultural insurance package through a discrete choice experiment. We use the ‘stated preference’ approach by offering farmers choice scenarios constructed as a fractional-factorial assignment. The attributes include the coverage area for weather index calculation (village, divisional-secretariat area, or district), the managing authority for the insurance scheme (government, a commercial bank, or an agribusiness company), the method of calculation of compensation (fixed rate, based on cost of inputs or based on the value of output/revenue) and the premium per term (at three levels). We analyzed a total of 2583 choice scenarios evaluated by 287 individuals using a conditional-logit model and estimated the ‘marginal willingness to pay’ (MWTP) for each attribute. The results of the choice experiment reveal the following. The smaller-sized administrative area level is preferred by respondents as a reference area for weather-index calculation while the government is preferred as the managing authority. The revenue-based compensation approach is preferred as the method of calculating compensation. Negative MWTP was observed for larger area indices and for insurance administered by an agribusiness company. The MWTP for revenue-based compensation is LKR 326 while the MWTP for fixed rate compensation schemes is LKR -420.

The EU is considering taking unilateral action to achieve higher carbon pricing for international aviation. It has been proposed that the EU could start a club mechanism whereby participating countries would have to tax (or include in an emissions trading scheme) the emissions of all outgoing flights as well as all flights coming in from non-participants at a fixed rate. They would then have to allocate a certain proportion of the tax revenue to some agreed-upon global institution for climate change mitigation. I propose an alternative club mechanism in which participating countries could allocate their tax revenue to Global Public Good Institutions (GPGIs) of their choice from a set of GPGIs recognized as eligible in the treaty establishing the mechanism. Of the tax revenue that participants decide to not allocate, they could retain a fixed proportion. The remaining revenue would be added to the GPGIs, in proportion to the aggregate allocations made to them. I consider an example where the set of eligible GPGIs consists of 2 GPGIs for global health and 4 for climate change mitigation. I estimate the payoffs that countries would derive from money being added to the different GPGIs, taking into account the heterogeneous benefits generated by each GPGI, the rents that some GPGIs create and the re-distributional effects that some GPGIs induce by changing e.g. the oil price. Using an iterated best response algorithm and assuming that initially only the EU and China participate, I predict that this new mechanism can achieve 22% more welfare gains than the previously proposed one, raising 50% more revenue for GPGIs. I then enrich the mechanism by allowing countries to also give to so-called “Proportional Matching Funds”, which distribute their budget to subsets of GPGIs, in proportion to the direct allocations made to these GPGIs. This enriched mechanism can achieve 67% more welfare gains than the previously proposed one, raising 100% more revenue for GPGIs.

Research interest in the reaction of consumption to expected inflation has increased in recent years due to efforts by central banks to kick-start demand by steering inflation expectations. We contribute to this literature by analysing whether various components of households’ balance sheets determine how consumption reacts to expected inflation. Two channels in particular are conceivable: an increase in inflation expectations can raise consumption through direct increases in expected real wealth, e.g. for households with nominal financial liabilities. By affecting the real interest rate, expected inflation can interact with wealth if only those households can adapt their consumption to current real interest rates that are not budget constrained or sufficiently liquid to shift funds between consumption and savings. We investigate these channels empirically using household-level information on balance sheets, durable consumption, and inflation expectations from the Dutch Central Bank’s Household Survey. We find that household net worth moderates the relation between expected inflation and durable spending decisions. This effect is particularly strong for households with fixed interest rate mortgages.

Mortgages play a significant role in the US economy. Americans predominantly use fixed-rate mortgages (FRMs) to avoid interest rate risk, but the related risk aversion cost has not been analyzed yet. This paper fills the gap by investigating the cost of choosing FRMs over adjustable-rate mortgages (ARMs). We find that ex post, FRM borrowers made 12% – 23% higher payments to avoid 0.66% – 1.62% potential ARM payment shocks. Consequently, we introduce and analyze a payment-saving strategy to absorb ARM payment shocks. Emerging data show that ARM borrowers are less financially constrained and less of a concern to policymakers.

This paper presents a mathematical framework to derive an inventory model for time, reliability, and advertisement dependent demand. This paper considers the demand rate is high initially, and then the demand rate reduces later stage, which reflects the situation related to cash in hand. The uncertain deterioration of the product presents through Uniform, Triangular, and Double Triangular probability distributions. The holding cost of the proposed inventory system is dependent on the reliability of the item to make this study a more realistic one. This proposed inventory system allows the situation of shortage and partially backlogged at a fixed rate. Numerical examples, along with managerial implications and sensitivity analysis of the inventory parameters, discuss to examine the effect of changes on the optimal total inventory cost.

At this time many banks are incentive to lure consumer credit to consumers. In general, consumer loan interest rate is higher than productive credit, even there is a fixed rate. It seems that the fixed rate makes it easy to organize family finances, paying only monthly installments of the same amount, but if carefully calculated, the interest is much higher. Consumer Loan Protection with Insurance Policy Certificate 15.001673 is a life insurance product that guarantees repayment of the remaining amount of Loans and / or monthly loan installment of the Customer as Participant (Insured) to the Policyholder in case the Participant (the Insured) has a death risk or total temporary disability / Or total permanent disability. Although it is clear about the rights and obligations in the insurance agreement but the reality is very different because it turns out the insurer does not fulfill its obligations in the event of claim submission from the insured. Rejection of insurance claims may be made by the insurer under the pretext of submitting the file beyond the specified time limit. Issues to be studied further is how validation of denial of life insurance claim made by Jasindo in accordance with the insurance policy and existing legislation and whether Partner Error is can be classified as Wanprestasi payment of Insurance Claim for late in submission of policy file No: 15.001673. In conducting research, this research is normative law research that is research having object of study about rule or rule. The objective is to determine the validity of the refusal of insurance claims made by Jasindo in accordance with the existing insurance policies and regulations and to find out the Default Payment of Insurance Claims due to Delayed Submission by Marketing Party as Collector Submission of Claim on Insurance Certificate Number 15.001673

This paper studies how individuals change gambling behavior when offered Prize-Linked Savings (PLS) accounts, which provide lottery-like interest payoffs instead of a fixed rate of interest. My analysis combines transaction-level data on cash withdrawals at casinos with a natural experiment in the introduction of lottery-linked savings accounts in Nebraska at the beginning of 2012. After the introduction of lottery-linked savings, consumers in affected regions reduce casino gambling by 7 to 15 percent relative to unaffected regions. This effect is stronger when savings lotteries and casino gambling are similar, consistent with the interpretation that the effect is due to attribute-based substitution. In addition, I find that PLS leads to stronger substitution when gambling patrons exhibit relatively greater sophistication in how they access cash. Although PLS accounts effectively redirect gambling expenditure into savings, these findings suggest that the introduction of PLS does not merely substitute for better financial sophistication. Indeed, the impact of PLS on casino gambling is greater for consumers with better ex ante financial habits.

The paper studies the effects of mortgage choices between fixed‐rate mortgages (FRMs) and adjustable‐rate mortgages (ARMs) on labor market efficiency. FRMs provide insurance for risk‐averse borrowers in the sense that they pay the same rate over time and are not subject to uncertain spot market rates. FRMs, however, discourage borrowers from moving to other regions despite better employment opportunities, as they terminate the FRM contracts in order to move and their new loan interests may be higher. As FRM‐borrowers do not move to other regions due to the interest lock‐ins, entrepreneurs in other regions lose the potential surpluses from productive matches that would have occurred between borrowers‐workers and entrepreneurs. Borrowers ignore this negative externality they impose on the entrepreneurs when choosing their mortgages, and too many borrowers choose FRMs relative to the efficient level. If FRMs are eliminated and ARM‐insurance (that protects ARM‐borrowers against uncertain adjustable interest rates) is created, it will improve efficiency. The paper also assesses quantitatively the welfare effects of eliminating FRMs and providing ARM‐insurance.

This paper aims to explain the operational and legal infrastructure of Rastin Profit and Loss Sharing (PLS) Banking. To handle Rastin Banking, the particular theoretical and operational regulatory frameworks and legal context of the contracts should be defined to fulfil the participation operations. We will have a look at the necessary legal environment to setup Rastin Banking. This system requires more elaborations for further practical development and adjustment. In this system, the investment return of the participation is distributed to the parties of financial partnership (depositor, entrepreneur and bank), and it is done by eliminating fixed interest rate, and it is based on the real economy profit (return) of the activity. Rastin Banking can lead to important positive effects on growth and economic welfare through money and capital markets. Interest rate as an essential factor in conventional banking is not usable in Islamic banking and other similar institutions that work based on partnership, such as mutual funds and saving and loan associations. Approach of this system is entirely different from the conventional banking. In addition to removing usury in banking activities, Rastin Banking uses the best practical ethic finance to creating safe and public confidence environment for banking operations.

The mortgage market has given rise to a changing and diverse set of borrowers actively using ARMs. Data from the Panel Study of Income Dynamics (PSID) for 2007 and 2013–2015 are used to study borrowing decisions. One view is that an ARM should be offered and taken by those better able to respond to an upward reset. Yet favorable economic conditions induce a demand for mortgages, including by higher risk borrowers, and for these households transactions occur at higher rates, often as ARMs, especially as of 2007. Panel analysis confirms some response to the spread but also to changing demand for mortgages in the shorter run. During the boom, the use of ARMs as a tool for ‘affordability’ led to actual transaction rates exceeding those for fixed rate mortgages. Analysis confirms substantial payment difficulties. Yet, analysis of mortgage transitions, 2007–13, establishes that the ‘affordability’ component to ARM, though less significant, still was present. ARMs were often taken by minorities and those with less education and with family income under $60,000 per year.

In this paper, we address the mathematical analysis of a partial differential equation model for pricing fixed-rate mortgages with prepayment and default options, where the underlying stochastic factors are the house price and the interest rate. The mathematical model is posed in terms of a sequence of linked complementarity problems, one for each month of the loan life, associated with a uniformly parabolic operator. We study the existence of a strong solution to each one of the obstacle problems.

This article analyses the behavior of real effective exchange rates of BRICS countries and Eurocurrencies (USD & GBP). The obtained data reveals regularities in the behavior of BRICS currencies during the period of 1994–2016 and confirms that rates in the export-focused economy depend on the structure of the international market of real and financial assets. It also demonstrates high currency volatility (on average 50 % in the group) in the zone reaching the level of BIS real effective exchange rate (REER) = 100 (CPI-base 2010). The fundamental analysis shows that in the long-term (1994–2017), BRICS currencies demonstrate stable growth and the fixed rate regime (as Yuan) proved to be the most efficient in the formation of the national segment of global economy. Downward trends in Forex reflect debut difficulties BRICS economies and finances experienced in the process of integration into the global financial and economic environment. High turbulence and volatility of the REER in the range of 60–130 % was the result of the global crisis of 2008–2009 and oil shocks in 2014–2015. The REER below 100 % reflects low corporate and global competitiveness of BRICS economies and weaknesses in public and corporate finance, not the stability of currencies. This research provides a long-term forecast for the strengthening of currencies, as a result of growing efficiency of national economies and the creation of BRICS financial infrastructure (New Development Bank [capital $100 bln] and Pool Contingent Reserve Arrangement [startup capital $100 bln]), as well as an increase in the share of national currencies in mutual payments. The possibility for constructing a short-term forecast, based on the polynomial residues model and statistical modeling, is demonstrated in the case of BRICS currencies. The results of the short-term BIS REER forecast can also be used for forecasting the behavior of currencies, hedging by participants of foreign trade transactions, and currency policy of central banks.

With the urgent need to regulate provider behaviors, China developed a novel patient classification with global budget payment system, expecting to achieve both easy implementation and cost containment. The new system, called “diagnosis-intervention packet (DIP)” payment, is based on a deterministic patient classification approach, which groups patients according to the combination of principal diagnosis ICD-10 (International Classification of Diseases, 10th Revision) codes and procedure ICD-9-CM3 (International Classification of Diseases, 9th Revision, Clinical Modification) codes and links each group to relative historical costs market-wide. This study investigated the impact of the DIP-based payment on inpatient costs, length of stay, and quality of care in the largest DIP pilot city of China. In 2018, the city changed from the “fixed rate per admission with a cap on annual total compensation” policy to DIP with global budget for all insured inpatients. A difference-in-differences approach was employed to identify changes in outcome variables before and after the DIP policy among insured relative to uninsured patients. We found an average of 8.5% (p = 0.000) increase in inpatient costs per case (as intended), trivial changes in length of stay, and a 3.6% (p = 0.046) reduction in postoperative complication rate in response to DIP adoption among patients with high severity. Our findings suggested that the DIP-based payment helped regulate provider behaviors when treating high-risk patients. And the new payment has the potential for rapid rollout in resource-limited areas where lack a uniform coding practice or high-quality historical data.

This paper considers a modified principal-agent environment, where principals can use personalized offers based on agents' reciprocity-related information. With such information, principals can either impose stronger financial incentives or try to “trigger” agents' positive reciprocity by offering a higher fixed rate. Theory suggests that principals who believe in agents' reciprocity would personalize offers so that reciprocal agents increase their effort beyond the self-regarding benchmark. Using a lab experiment, we test the behavior of principals and agents. Our experimental market witnesses significant wage personalization when reciprocity information is available. However, agents' effort levels and principals' payoffs are lower under wage personalization, compared with the sessions where principals cannot personalize offers. Our structural analysis shows that, under wage personalization, agents expect higher fixed wages and reciprocate higher wages less. Information about agents' individual reciprocity is more correlated with the expected wages, rather than the strength of reciprocity toward higher or lower wages. Principals grant higher fixed wages to workers with lower wage expectations, but because principals cannot personalize offers effectively according to the strength of reciprocity, the performance of wage personalization is limited.

In this paper, we consider a supply chain consisting of a well-capitalized manufacturer, a well-capitalized and reliable supplier, and a capital-constrained and unreliable supplier with random yield. The interactive relationship among them is modeled as a Stackelberg game with the manufacturer as the leader and the suppliers as the followers. The optimal production quantity of the suppliers and ordering quantity of the manufacturer are derived. We investigate the manufacturer's optimal sourcing strategy considering a fixed interest rate. The analytical model shows that when external financing is available, the optimal sourcing strategy depends on the interest rate threshold. Specifically, if the interest rate is lower than the threshold, the unreliable channel dominates; otherwise, the reliable channel dominates. When financing is not available and the supply price of the reliable supplier is high, dual-channel sourcing is the optimal choice. Computational studies are performed to explore the impacts of the initial capital and the interest rate on the optimal decisions and profits. It shows capital constraint does not always decrease the attraction of the unreliable supplier for the manufacturer. Actually the attraction of using an unreliable supplier can increase if the interest rate is low or the initial capital of the unreliable supplier is small. Several extensions are considered in this paper. We show the attraction of the unreliable supplier for the manufacturer will increase if the sourcing price from the unreliable supplier is endogenously determined by the manufacturer or the demand is random.

Behavioral finance is still mostly perceived as a field solely devoted to the study of asset pricing and behavior of individual investors. This interpretation to a large extent is misleading as it overlooks a growing body of empirical work in household finance, a subfield of behavioral finance concerned with household investment and borrowing decisions. By focusing on household under-saving, non-participation, and under-diversification, as well as mistakes in choosing debt contracts and managing debt obligations, this paper aims at presenting recent findings in household finance to a wide audience. This review differs from the existent ones as it focuses on the plurality of non-mutually exclusive explanations of the observed phenomena, including those that come from the competing research traditions. The special emphasis is made on the choice between fixed rate and adjustable rate mortgages, given its significance for macrofinancial stability. The review also discusses the evidence indicating that firms are aware of households’ behavioral weaknesses and readily exploit them.

Treasury Floating Rate Notes (FRNs) were introduced in 2014 as a way to diversify the U.S. Treasury funding base and lower its borrowing costs. Using daily data on all Floating Rate Notes issued from 1/2014 to 10/2016 we find that FRNs deliver a statistically significant excess return relative to the underlying index, as well as relative to other short-term interest rate benchmarks. However, yield spreads with respect to comparable maturity fixed rate Treasuries, quarterly data on auction outcomes, and block holding disclosures by financial institutions support the objectives set forth by the Treasury. Collectively our article provides a perspective on FRN contract features, the return and risk of these instruments, and insight into their clientele.

This paper uses wavelet-based optimal control to simulate fiscal and monetary strategies under different levels of policy restrictions. The model applies the maximal overlap discrete wavelet transform to US quarterly GDP data and then uses the decomposed variables to build a large 80-dimensional state-space linear-quadratic tracking model. Using a political targeting design for the frequency range weights, we simulate jointly optimal fiscal and monetary policy where: (1) both fiscal and monetary policy are dually emphasized, (2) fiscal policy is unrestricted while monetary policy is restricted to achieving a steady increase in the market interest rate, (3) only monetary policy is relatively active, while fiscal spending is restricted to achieving a target growth rate, and (4) monetary policy emphasizes short-run stabilization, while fiscal policy utilizes political cycle targeting. The results show that fiscal policy must be more aggressive when the monetary authorities are not accommodating the fiscal expansion and that the dual-emphasis policy leads to a series of interest rate increases that are balanced between a steadily increasing target and a low, fixed rate. This research is the first to construct integrated fiscal and monetary policies in an applied wavelet-based optimal control setting using US data.

Municipal water utilities in the United States face the challenge of balancing the potentially conflicting goals of sending signals about water scarcity and maintaining revenue stability. Times of extreme shortage such as the current extended drought in California seriously challenge and can jeopardize this delicate balance. Mandatory or voluntary conservation strategies can be detrimental to revenue stability. This study explores the ability of the Consumption-Based Fixed Rates (CBFR) pricing method to solve this dual dilemma of scarcity pricing and revenue stability in both normal times and times of drought. CBFR proposes using a proportional consumer pricing system directly based on utility supply costs. We utilize utility-side cost data from Lomita, CA and Longmont, CO, to estimate how consumer prices change under the CBFR method. Using simulations comparing current pricing mechanisms with the CBFR, we find that the latter solves the revenue problem, but creates greater problems with equity and scarcity versus the former. A modified structure of CBFR, with prices based partially on household income, seems to alleviate some of these problems and could prove to be a useful tool during times of drought.

In this paper we consider the valuation of adjustable-rate mortgages with prepayment and default options where the underlying stochastic variables are the house price and the interest rate. Additionally, we obtain the value of the insurance associated to the contract. The mortgage value is understood as the discounted value of the future monthly payments. The mathematical model to obtain the mortgage price is posed in terms of a sequence of complementarity problems associated with partial differential equations (PDEs). One of the main innovative aspects is the consideration of a floating interest rate, which is linked to an index and fixed for each year of the loan life. The model for the value of the insurance is also posed. In this setting, we propose appropriate numerical methods to solve the models, which are mainly based on a Lagrange–Galerkin discretization of the PDE in time and space, jointly with an augmented Lagrangian active set method to deal with the complementarity formulation. Finally, some numerical results are presented in order to illustrate the behaviour of the numerical schemes, the properties of the mortgage value and the comparison with alternative fixed rate mortgages.

This article makes a macro-quantitative analysis on the relationship between the interest rate and the general profit rate, studies their interaction relationship in China from 1990 to 2014 with the Structural Vector Autoregressive (SVAR) model, and tests the erosion effect of the benchmark lending rate on the general profit rate. The results show that the changes of the benchmark lending rate have a significant negative effect on the general profit rate and the impulse response function analysis shows that the effect is enduring and lasts for 6 years; the variance decomposition results show that the changes of the benchmark lending rate have a high degree of explanation, and the final contribution rate is stabilized at approximately 33%. With a correct understanding of the interaction relationship between the interest rate and the general profit rate, we can adjust the interest rate policy to slow down the decrease in the general profit rate and then mitigate the negative effect of the decrease on economic growth.

Successful exchange rate based stabilization programs in Europe, Israel and elsewhere have led many economists and policymakers to advocate the use of pegged exchange rates as an integral part of stabilization programs in the emerging market economies. This chapter discusses the ambiguous concept of "success" in stabilization. It examines the role of the exchange rate regime and other policies in stabilization programs in Argentina, Bolivia, Brazil, Chile, Ecuador, Mexico, Peru and Uruguay. Even allowing for considerable ambiguity in classifications, both of stabilization success and of exchange rate regimes, the Latin American experience amply demonstrates that use of the exchange rate as a nominal anchor is neither a necessary nor a sufficient condition for successful stabilization policy. The Latin American experience shows that fixed exchange rates are more likely to give way in the face of continued inflation than for inflation to be constrained by a fixed rate.

Purpose - This study aims to examine how the interest rate risk management that has been reflected in banks’ maturity gaps affect the net interest income (NII).Methodology - The population in this study is all conventional commercial (non-Sharia) banks in Indonesia as many as 99 banks. Of the 99 banks, 57 banks were selected as the sample of in the study. Determination of the sample is based on these criteria: the availability of the bank's annual report containing financial statements providing data about the descriptions of interest rate risk management, which also provides complete data about bank's RSA and RSL from 2013 - 2017. There are five years of the research period, so 285 unit observations are used in the analysis. The study employs multiple regression analysis with panel data. Net interest income is derived from the difference between interest income and interest expense. The maturity gap is calculated as the difference between RSA and Risk RSL. The study uses a dummy variable of IRS, LDR, net NPL and ownership status of banks.Findings - The results of the study show that maturity gap has a negative effect on NII and banks with positive gaps have higher NII than banks with negative gaps. These results imply that when the interest rate decreases, the widened positive gap will lower NII.Conclusion - The conclusion of the research is that in conditions of declining interest rates, the more positive gap between RSA and RSL has decreased banks’ NII. The practical implication of the results is that banks need to think about lowering the RSA by means of managing their assets, such as banks need to buy long-term securities, extend the loan maturity, and change the interest rate from the floating rate to a fixed rate. In terms of management liabilities, banks need to think about increasing RSL by giving premium interest rates for deposits with a maturity of less than one year, and by borrowing funds at fair interest rates.

We use results from the December 2016 CalSpeaks Survey to assess citizen understanding about how the property tax functions and the distributional impact of the tax. Key issues include (1) do California citizens today understand the provisions of Proposition 13 and the implications for how the property tax operates in California, and (2) given that knowledge, what is the perspective of California residents about the income incidence (progressivity) of the property tax. The survey results reveal weak current understanding of the tax rate limitations of Proposition 13 and a resulting overestimate of actual property tax payments. Only about one third of residents believe that the property tax is progressive (i.e. a greater percentage of income for a typical high-income person), with robust evidence that greater knowledge of the basic elements of Proposition 13 (fixed rate and method of assessment) increases the likelihood of belief that the property is progressive.

Since 1997, the Lebanese pound has been pegged to the U.S dollar at a fixed rate, and at every crisis, people rush to banks to convert their LBP accounts into U.S.D causing a high demand for foreign currencies. Fear and uncertainty finds its way to the market, and the general sentiment often causes various sectors of the economy to be negatively affected. Lebanon is highly dependent on the U.S.D and the LBP had slowly become nothing but a symbol of independence and a heritage that tells the story of “Lebanon”. This paper will examine the century’s most aspiring technology to see how it can be implemented to create a new form of national currencies, and how such a technology can incorporate basic to complex monetary policies in an automated manner to gain value, and have a controlled inflation through a pre-programmed system. This paper will also break down the “Bitcoin” conditions and show how it can be modified to fit a locally produced national crypto-currency for Lebanon that will be referred to as “Digi-Lira”. Finally, this paper will highlight the economic impact of the Digi-Lira on demand, investment, international trade, remittances, the unbanked population, and the banking sector.

Asset allocation is the decision on how much of the investment portfolio to place in each of the broad asset classes (e.g., cash, fixed interest securities, property, equities). An online survey among practitioners established that while there is a high level of awareness, there is a relatively low level of usage of asset allocation theory and theory-based methods in the industry. The reasons for this dichotomy were examined using a conceptual model based on those commonly used in research on adoption of an innovation or a new technology. Applying structural equation modeling on the survey data, perceived usefulness appears to have the strongest influence on usage followed by facilitating conditions. The two other theorized factors—perceived ease of use and external influence—appeared insignificant. Limitations of the study are discussed as well as future areas for related research.

This article examines the process of loan interest rate formation in Bulgaria. While the standard approach in the literature on interest rate pass-through is focused on the impact of changes in the domestic money market rate, the objective of this study is to adapt the existing interest rate pass-through analysis to the case of a country with a currency board arrangement. To this end, the role of money market conditions in the euro area and the influence of the domestic business climate are taken into account. The impact of these factors on loan interest rates in Bulgaria is examined through symmetric as well as asymmetric error-correction models. The analysis identifies specific patterns in the response of loan interest rates depending on the sector of the borrower, the currency denomination and the maturity of loans.

Mudhārabah practices as an icon rather than LKS (Sharia Financial Institution) is still raise unresolved polemic associated with akunting system and balance, especially in the domain of financing, so that the stigma of people who think that the operating system is the same as the system of financial calculating interest only the different’s name has been continues. When examined in detail, there are other products that legitimized the contract either by the arguments Syara agreed by the majority of scholars and schools of jurisprudence, namely the contract of Ba‘i Bitsaman Ājil (BBA) or purchase by way of pay gradually. This article concludes; First, offers a BBA in finance BMT Damar and BMT-KJKS IAIN Walisongo experiencing significant growth, in addition to a simple transaction models are not complex, almost the akunting system likes fixed rate (fixed rate) so that customers become more familiar because the system is not much different from the credit money. Second, BBA financing acounting system can be separated from other products offered by BMT and not to be come one system with murābahah financing. Third, although the BBA acounting system similar to the system of interest and somewhat complicated because managers have the purchase to be come representer for wakālah contract to goods of customers, but offers and akunting BBA financing is more flexible and is not affected by rising interest rates as the often occurs in LKK )Conventional Financial Institutional)

The purpose of this study is to explore the interest rate pass-through mechanism among three interest rates (discount rate, deposit rate and lending rate) in the Malaysian economy by conducting the asymmetric threshold autoregression (TAR) and momentum threshold autoregressive (MTAR) techniques and EC-EGARCH (1,1)-M model over the period January 1990 to July 2013. Moreover, we also examine the impact of the global financial crisis of 2008-2009 on these interest rates. The existence of asymmetric threshold cointegration relationships have been found between two interest rates in TAR and MTAR models, whereas only a symmetric cointegration relationship has been found between lending and discount rate in the MTAR model. The estimation of the ECEGARCH (1,1)-M model shows that the effect of interest rates volatility (deposit rate and lending rate) on the discount rate differs in this economy. Upward rigid adjustment has been recognized in both models. In addition, leverage effect has been found visible for both models. Further, the global financial crisis of 2008-2009 does not show any significant changes in the speed and size of the pass through of different interest rates. The responses of the discount rate, to both deposit and lending shocks, are found positive, while the lending shock is found decreasing after the 6th period by using the impulse response function.

Theoretical background: The increase in the issuance of Eurobonds by the issuers from Central and Eastern Europe has become a reason for considering the impact of the issuer’s creditworthiness assessment on the interest rate of the coupon of the issued debt instruments.Purpose of the article: The aim of the study was to assess whether having a creditworthiness assessment from more than one agency affects the interest rate on the Eurobond coupon. This objective was achieved through the process of analysis of the ratings assigned by the rating agencies. Based on the analysis of the literature and the available data, the research hypothesis was developed and verified in an empirical study. The results were analyzed in the discussion section.Research methods: The credit ratings for the Eurobonds corporate and government issuers, announced on the issue date, have been analyzed. The analysis covered the fixed interest rate debt instruments issued in EUR in the years 2005–2020 (the first half of the year). The empirical research was carried out using the observation method, the analysis of source documents, and the method of deduction.Main findings: The results of the conducted research indicate that the coupon rate is not affected by the number of ratings given to the issuer. Due to the fact that the lowest average coupon interest in 2005–2020 was held by Eurobonds of the issuers with one credit rating, there is no need for an additional creditworthiness assessment by other agencies, and for any additional costs to be incurred by the issuer. It is one of the few studies on the Central and Eastern Europe market of which the author is aware.