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Securities and other capital inflows of assets that may be held by other foreign nations make up international portfolio investments. An investor who makes a foreign portfolio investment (FPI) gains indirect ownership of financial assets. So, this study aims to investigate the main determinants of FPI in Western Balkan Countries. Key variables included in the study are portfolio investment, GDP per capita growth, foreign direct investment (FDI), external debt (EXD), inflation, population, real interest rate, and regulatory quality, sourced from the World Bank. The methodology employed involves panel data regression analysis using fixed and random effects, allowing the observation of the influence of economic, demographic, and institutional factors across time and entities. It is important to observe if FPI is determined by economic growth and other considered potential determinants. The findings indicate that the portfolio investment of Western Balkan countries is significantly influenced by GDP per capita growth, external debt, inflation, and real interest rates. [ABSTRACT FROM AUTHOR]

This paper empirically examines the correlation between population growth and real interest rates. Although this correlation is well founded in macroeconomic theory, the corresponding empirical results have been rather tenuous. Demographic interest rate theories are typically based on long‐term relationships across generations. Accordingly, key population trends appear often only across decades, if not centuries, worth of data. To capture these trends, we distinguish between population growth resulting from a birth surplus and net migration. Within a panel covering 12 countries and the years since 1820, we find robust evidence that the birth surplus is significantly correlated with the real interest rate. [ABSTRACT FROM AUTHOR]

This work focused on estimating the Natural Rate of Interest for Brazil, employing three different state-space modelling approaches with several combinations of input variables. Results obtained reiterate the downward trend frequently mentioned in the literature before the pandemic shock, after which the NRI started to rise once again: ranged from 1.6% to 4.5% in 2019 and between 3.6% and 5.75% in 2023. Based on the results, the monetary policy stance in Brazil is summarized into five periods: 2000-2006, predominantly contractionary--an adaptation period after the Plano Real; 1Q-2007 to 1Q-2014, a period with noticeably loose monetary policy; 2Q-2014 to 2Q-2019, when the stance was predominantly contrationist. 3Q-2019 to 2Q-2022, when the stance went from neutral to expansionist, specially in the aftermath of the Covid-19 shock; 3Q-2022 to 4Q-2023, with a worldwide contractionary phase to cope with inflationary pressures. [ABSTRACT FROM AUTHOR]

Copyright of Ekonomik Yaklaşim is the property of Ekonomik Yaklasim Dernegi (Ekonomik Yaklasim Association) and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This article aims to construct a monetary condition index (MCI) for five countries in the MENA region, namely Algeria, Bahrain, Egypt, Jordan, and Morocco, in order to interpret the stance of monetary policy in these countries. A broad MCI has been constructed by combining two transmission channels of monetary policy, the real interest rate and the real effective exchange rate, along with bank credit to the private sector. These three indicators of the monetary conditions are collected for these countries over the period 1995-2020 for all countries except for Bahrain, which has data from 1995 to 2015. Principal component analysis (PCA) is used to construct the monetary condition index (MCI). Then a vector auto-regression method is employed to explore the impulse response of MCI to consumer price index (CPI) and GDP. The results reveal that the MCI of Bahrain, Egypt, and Jordan can predict inflation and economic growth in the long run but cannot do that in the short run. However, in the cases of Algeria and Morocco, the findings show that MCI cannot predict inflation and GDP in the short and long run. [ABSTRACT FROM AUTHOR]

Lagos State's transformation into a critical urban hub highlights its economic promise and challenges, including rising unemployment, police brutality, and poverty amidst rapid growth. This study delves into how population increase, government spending, and financial policies affect the economy, revealing the critical role of education and job creation in tackling unemployment and enhancing living conditions. It underscores the impact of capital expenditure and monetary policies on economic stability, advocating for balanced development and targeted interventions to foster prosperity. The experience of Lagos offers valuable lessons for nationwide policy formulation and informed efforts for sustainable urban development and progress. [ABSTRACT FROM AUTHOR]

This paper examines the relationship between external debt and economic growth over the period 1981-2021 in Nigeria using the ARDL econometric technique. As economic growth is elusive amid a high and increasing stock of external debt, the country is on the verge of losing access to international financing. Thus, the problem provokes raging discussion on whether, or not, external debt is growth-enhancing in Nigeria. As such, in an attempt to contribute to the discussion and proffer a solution to the problem, this paper builds on an earlier study. Consequent upon preliminary diagnostics, a oneway causality is established to run in a specific pairwise relationship as each of external debt and domestic investment Granger causes economic growth. Moreover, following the affirmation of the long-run relationship among the variables, estimation results reveal an inverse relationship between real interest rate and economic growth in the short-run. The results further establish that external debt impacts negatively, as against openness to trade and domestic investment averagely impacting positively, on economic growth in both the short-run and long-run. In essence, if it becomes pertinent for the country to borrow for growth-enhancing investments, the government is advised to borrow at a zero rate of real interest. [ABSTRACT FROM AUTHOR]

This paper examines the relationship between external debt and economic growth over the period 1981-2021 in Nigeria using the ARDL econometric technique. As economic growth is elusive amid a high and increasing stock of external debt, the country is on the verge of losing access to international financing. Thus, the problem provokes raging discussion on whether, or not, external debt is growth-enhancing in Nigeria. As such, in an attempt to contribute to the discussion and proffer a solution to the problem, this paper builds on an earlier study. Consequent upon preliminary diagnostics, a one-way causality is established to run in a specific pairwise relationship as each of external debt and domestic investment Granger causes economic growth. Moreover, following the affirmation of the long-run relationship among the variables, estimation results reveal an inverse relationship between real interest rate and economic growth in the short-run. The results further establish that external debt impacts negatively, as against openness to trade and domestic investment averagely impacting positively, on economic growth in both the short-run and long-run. In essence, if it becomes pertinent for the country to borrow for growth-enhancing investments, the government is advised to borrow at a zero rate of real interest.

Despite considerable reforms of Chinese monetary policy, very few papers have empirically examined the long-run effects of monetary policy on China's economic growth. Our purpose is to shed some light on it. We use money supply, real effective exchange rate, and real interest rate to describe monetary policy of China. We first apply the Granger causality test to annual data from 1980 to 2020 to examine the relationship between monetary policy and China's economic growth measured by Chinese real GDP. Our results suggest both money supply and real effective exchange rate Ganger cause Chinese real GDP, while real interest does not. We then adopt the autoregressive distributed lag (ARDL) model without asymmetric effects and nonlinear ARDL with asymmetric effects of exchange rate to estimate the impact of monetary policy on China's economic growth. Our long-run results indicate that expansion of money supply would promote Chinese real GDP growth. Both higher interest rate and depreciation would hinder China's economic growth. There are asymmetric effects of exchange rate on growth. Finally, the CUSUM and CUSUMQ stability test results reveal that the relationship among money supply, real effective exchange rate, and real interest rate with Chinese real GDP is stable. [ABSTRACT FROM AUTHOR]

In this article, we examine the relationship between the debt and the ex‐post real interest rate on the basis of a sample from the G20 with the panel analysis, the panel threshold model, and a panel VAR model, particularly during times of high debt levels. In contrast to the results from the previous literature, our estimates suggest the negative connections between debt levels and real rates of interest: high debt levels reduce the current and expected real rate of interest, and the low real interest rate would raise the current and forward‐looking debt levels. Further investigations using the panel threshold model identify and quantify threshold values of debt on the forward real interest rate. In addition, we find that the threshold values of debt levels for advanced countries are far higher than the relevant values for emerging countries, which confirms the theory of "debt intolerance." Third, the estimated impulse response functions from the panel VAR simulation support the significantly negative associations between debt levels and real interest rates. Fourth, the system GMM regressions and dynamic panel threshold tests show that our above conclusions are robust. [ABSTRACT FROM AUTHOR]

This paper revisits the link between exchange rate and interest rate considering the role of uncertainty due to infectious diseases in the South African economy using monthly data from January 1985 to August 2020 within a nonparametric framework. First, we examine the relationship between the exchange-interest rates hypothesis and observe a significant positive link, especially during the pandemic. Second, we analyze the volatility spillover among exchange rates, interest rates and other macroeconomic fundamentals and find a strong connection with the interest rate being net receivers of shocks. Third, with evidence of nonlinearity in the variables, the nonparametric quantiles-based causality test shows that the spillover for each asset is driven by pandemic uncertainty around the median quantiles. Conclusively, this suggests that the role of global health news in influencing the South African financial cycle which consequently leads to capital flows and movements in the prices of assets across financial markets cannot be downplayed. Relevant policy implications can be drawn from these findings.

Abstract This paper proposes long-run estimates of ex ante real interest rates in Switzerland and other developed economies, and it describes their relative evolution. Our results highlight the decline in—and convergence of—global real interest rates that has unfolded over the last three decades for all maturities. While Swiss yields stand out as being particularly low and stable from a historical perspective, we find that Swiss interest rates have fallen less than in many other countries during the last decade. We then examine whether the reduction in the interest differential is related to a lower attractiveness of the Swiss franc. Focusing on the difference of Swiss minus German real government bonds yields, we find a significant increase in expected real depreciation of the Swiss franc and a somewhat lower convenience yield for Swiss bonds—the convenience yield reflecting the non-pecuniary value that investors impute to the liquidity of a given bond. In contrast, the safety premium in favor of the Swiss franc increased and therefore cannot explain the smaller decline in real interest rates in Switzerland. The last part of the paper analyzes the negative convenience yield on Swiss government bonds and its recent decline. We show that both the purchase of government bonds by foreign central banks and foreign exchange interventions by the Swiss National Bank may have contributed to this decline by reducing the relative supply of foreign versus domestic government bonds.

Housing affordability is one of the major social problems in many countries, with some advocates urging governments to provide more accessible mortgages to facilitate more homeownership. However, in recent decades more and more evidence has shown that unaffordable housing is the consequence of monetary policy. Most of the previous empirical studies have been based on econometric analyses, which make it hard to eliminate potential endogeneity biases. This cross-country study exploited the two global interest rate shocks as quasi-experiments to test the impacts and causality of monetary policy (taking real interest rates as a proxy) on house prices. Global central banks' synchronized reduction in interest rates after the outbreak of the COVID-19 pandemic in 2020 and then the global synchronized increase in interest rates after the global inflation crisis in 2022 provided both a treatment and a treatment reversal to test the monetary policy hypothesis. The stylized facts vividly reveal the negative association between interest rate changes and house price changes in many countries. This study further conducted a ten-country panel regression analysis to test the hypothesis. The results confirmed that, after controlling for GDP growth and unemployment factors, the change in real interest rate imposed a negative effect on house price growth rates. The key practical implication of this study pinpoints the mal-prescription of harnessing monetary policy to solve housing affordability issues, as it can distort housing market dynamics. [ABSTRACT FROM AUTHOR]

In this paper, the strong consistency of the Brennan‐Schwartz diffusion process (BSDP) Euler‐maximum likelihood (EML) parameter estimators is investigated. The Euler‐Maruyama scheme is first utilized to produce a discretized solution process, and then, the EML estimation technique is employed to construct explicit forms of the parameter estimators. Following that, using martingale theory (specifically, conditional expectancy, the strong law of large numbers for martingales and some inequalities), we show that, under certain reasonable conditions, the estimators α^ and β^ converge almost surely to their true values, implying strong consistency, and the estimator σ^2 converges in L2 to its true value. We have demonstrated that the interest rates (IRs) of Morocco and France may be represented using the BSDP, taking into consideration the possible convergence requirements of the estimators and some numerical simulation. This model helps us to anticipate how these IRs will evolve in the future years. [ABSTRACT FROM AUTHOR]

The objective of this study is to explore the impact of commodity price volatility on the governments' fiscal balance. Using a dynamic panel data model for 108 countries from 1993 to 2018, this study finds that governments' fiscal balance deteriorates with commodity price volatility, especially for commodity-exporting economies. A one standard deviation increase in commodity price volatility leads to a reduction of approximately 0.04 units in the fiscal balance as a percentage of gross domestic product. Further, we examine the role of real interest rates in influencing the relationship between commodity price volatility and fiscal balance. The empirical results suggest that the negative impact of commodity price volatility on fiscal balance can be mitigated with a lower real interest rate. This implies under the sticky price assumption, an accommodative monetary policy could be effective in moderating the negative effect of commodity price volatility on fiscal balance. [ABSTRACT FROM AUTHOR]

This paper proposes long-run estimates of ex ante real interest rates in Switzerland and other developed economies, and it describes their relative evolution. Our results highlight the decline in—and convergence of—global real interest rates that has unfolded over the last three decades for all maturities. While Swiss yields stand out as being particularly low and stable from a historical perspective, we find that Swiss interest rates have fallen less than in many other countries during the last decade. We then examine whether the reduction in the interest differential is related to a lower attractiveness of the Swiss franc. Focusing on the difference of Swiss minus German real government bonds yields, we find a significant increase in expected real depreciation of the Swiss franc and a somewhat lower convenience yield for Swiss bonds—the convenience yield reflecting the non-pecuniary value that investors impute to the liquidity of a given bond. In contrast, the safety premium in favor of the Swiss franc increased and therefore cannot explain the smaller decline in real interest rates in Switzerland. The last part of the paper analyzes the negative convenience yield on Swiss government bonds and its recent decline. We show that both the purchase of government bonds by foreign central banks and foreign exchange interventions by the Swiss National Bank may have contributed to this decline by reducing the relative supply of foreign versus domestic government bonds. [ABSTRACT FROM AUTHOR]

The monetary transmission mechanism in a New‐Keynesian model with contemporary features is put to scrutiny. In contrast to Rupert and Sustek (2019), we find that the real interest rate channel is structural when the model contains empirically realistic frictions on the flow of investment. A monetary contraction (expansion) is always followed by an increase (decrease) in the real interest rate. The monetary transmission mechanism indeed operates through the real interest rate channel in this class of models. [ABSTRACT FROM AUTHOR]

Our intention in this article is to examine the possible consequences on the Macedonian capital stock generated by the ongoing economic crises, originated from the Russian - Ukraine conflict, as well as to evaluate the eventual effects on capital accumulations from the upcoming tax reform starting from January 2023. In order to deflect invading Russia, western countries nave implemented numerous sanctions, but so far they haven't achieved their primary goal. Instead, a surge of inflation has occurred, especially on food, energy and oil, indicating on the economic fragility and energy dependency of the European countries. And this trend wasn't exceptional for North Macedonia, on the contrary, the inflation rates are record breaking ever since 1994. Meanwhile, the monetary policy was "sluggish" and unable to offer an adequate response to the accelerated spiral of inflation. The Central bank raised the basic interest rate, but not enough to incorporate the inflation premium. As a result, the real interest rate has fallen deeply into the negative zone, which could, as we can see from the research bellow, possibly decrease the marginal productivity of capital and therefore the capital stock. On the other hand, the intended tax reform is also expected to interfere the cycle of capital accumulations, but in much smaller effect. All these determinants are examined with application of the model of domestic capital formation, developed on the foundations of Neoclassical Theory of Investment, the concept of Marginal Productivity of Capital and the principles of Marginal Effective Tax Rates. The results will reveal that there is a real possibility for sharp contraction of investment and for the first time in the last 3 decades, disruption of the perpetual cycle of capital stock in domestic economy. [ABSTRACT FROM AUTHOR]

Today innovations are drivers of countries’ economic growth, competitiveness, security, and sustainable development. Financial policy and its instruments play a significant role in innovation management, and monetary instruments are one of the most important components of financial policy. Therefore, the necessity of increasing the efficiency of financial support for innovation development actualizes the study of the impact of the monetary policy instruments and indicators on the level of financing innovation. The aim of the article is to improve the scientific basis for the study of the impact of monetary policy instruments and indicators on the dynamics of financing innovation based on empirical evidence. Information basis of the research was formed from the data for Ukraine and 12 post-soviet and other countries with similar starting economic conditions for 2010-2019, taking into account the availability of statistics from the International Monetary Fund, the World Bank, and the central banks for the whole investigated indicators at the time of the study. The software base included Excel and STATA. The methods of regression (linear regression model with panel-corrected standard errors) and correlation analysis (calculating Pearson and Spearman coefficients) were applied to identify a relationship between monetary instruments and indicators and indicator of financing innovation, confirm the hypothesis about the impact of the monetary instruments and indicators on the financing innovation and formalize this effect. To strengthen the country’s innovation development, it is proved the expediency of lowering the discount rate and real interest rate, increasing “broad money” on general reserves, and increasing liquid reserves on bank assets, as well as the transition to inflation targeting. According to the calculations, for all monetary instruments and indicators, except the discount rate, the directions of influence in Ukraine and the panel from 12 other countries were opposite. This one confirms that monetary instruments in Ukraine are not fully performing their regulatory function, in the context of stimulating innovation development. [ABSTRACT FROM AUTHOR]

This paper attempts to investigate the relationship between capital account openness and occurrence of financial risks in India by employing finite distributed lag model. Annual data from 1979 to 2018 on real effective exchange rate, real interest rate, international reserve and net capital have been used to compute Exchange Market Pressure index and the degree of capital account liberalization. The study finds that opening up of capital account will have harmful effects on the financial stability of the country in the initial years, say a year or two. However, the degree of financial risks will go down in later years by influencing capital inflows. Finally, the study has suggested that the Reserve Bank of India needs to take precautionary measures to mitigate short term volatility of capital flows before choosing fuller capital account convertibility.

The study aims to examine the relationships between variables from different perspectives by using Turkey's Real exchange rate (TL/USD), Real interest rate and Consumer price index data. Data from 2012M7 to 2021M12 were used in the study. In order to examine the relationships between the variables, seasonality tests and stationarity studies, which are among the time series analysis methods, were performed. Then, the model was estimated within the scope of VAR Analysis, the compatibility of the model with the real data was checked, the validity and reliability tests of the model were made and the residuals were examined. Inter-variable Impact Response Function and Variance Decomposition statistics are discussed for the model that meets all assumptions. The use of current data in the study and the use of graphics for qualitative evaluation contributed to the literature. As a result of this study, it has been determined that the consumer price index moves independently of other variables, and there is a limited relationship between exchange rate and real interest in every respect. In the first part of the study, the introduction and the theoretical framework are discussed. In the second part, the literature is examined, and in the third part, the methods and applications used in the study are given. The last part is the conclusion and discussion. [ABSTRACT FROM AUTHOR]

Copyright of Journal of Economics & Administrative Sciences is the property of Republic of Iraq Ministry of Higher Education & Scientific Research (MOHESR) and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Based on China's monthly data from January 2006 to June 2018, this paper uses the symmetric regressive distributed lag model (ARDL) and nonlinear asymmetric regressive distributed lag model (NARDL) to examine the impact of the real interest rate, products' shortage costs and products' selling prices on China's overall inventory investment, and focuses on the asymmetric impact of the three factors on inventory investment. The empirical results show that the real interest rate has a negative impact on inventory investment, and its inhibition effect is stronger than the pulling effect. The products' shortage costs have the positive effect on inventory investment, and the effect of increasing shortage costs are greater than that of decreasing the shortage costs. The products' selling prices are also positively correlated with inventory investment, but the decline of the products' selling prices has the greater impact than the increase of the products' selling prices. [ABSTRACT FROM AUTHOR]

In a two-period decision model, a central bank chooses a CBDC (central bank digital currency) interest rate and a representative household allocates resources into production, consumption, CBDC holding, and non-CBDC holding. The model's analytical results and a plausible benchmark are compared with the empirics for the US, China and Russia. Interesting novelties of the article are that the model predicts that the US in 2021/2022 should choose 7.56% rather than 0.125% CBDC interest to combat its high October 2021 empirical inflation of 6.2%. That would induce households to hold more CBDC, hold less non-CBDC, and produce and consume less. In contrast, the model predicts that China should choose a low 2.99% rather than 3.85% CBDC interest rate. That would decrease each household's CBDC holding and increase the low inflation. The model predicts that Russia should choose 6.82% rather than 6.75% CBDC interest rate. Russia's strategy is remarkably consistent with the model's predictions. The model predicts that the central bank should choose negative CBDC interest rate when the inflation and real interest rate are low, and the inflation target is high. The article shows how extremely high inflation, which increases the CBDC interest rate, makes production and consumption nearly impossible, unless the real interest rate is extremely negative. [ABSTRACT FROM AUTHOR]

The article works out the essence of theoretical concepts of both the internal and the international effects named after I. Fisher. A review of professional publications gave reason to conclude that in the countries with higher levels of marketing of the economy, the strength of these effects is higher, which indicates a higher level of integration of their national financial markets into the global financial market. Based on the results of an econometric analysis, the authors have concluded about the relative weakness of the internal Fisher Effect and, consequently, on the need to use multifactor analysis in the study of the dynamics of the real interest rate in Ukraine. The empirical evaluation of the dependencies of monetary variables in the model describing the international Fisher Effect gave reason to conclude about the relative weakness of this effect, in particular for the currency pair of «dollar – hryvnia», and therefore, the differential of national interest rates is not sufficient basis for forecasting the dynamics of the foreign exchange rate. The article uses a number of statistical criteria and tests to examine the used econometric model, which gave grounds to conclude about its adequacy and statistical significance of variables. The authors elaborated the factors that have a restrictive impact on the international movement of capital and therefore can cause differences in the real interest rates, especially in emerging markets, namely: asymmetry of market information, psychological barriers, national legislative restrictions that quota the international capital flows, high transactional costs, peculiarities of the tax system, currency risks, political risks, etc. The thesis that the presence of weak Fisher Effects for the Ukrainian economy is one of the reasons for the low effectiveness of the interest channel of the transfer mechanism of monetary policy in Ukraine is substantiated.

Real Interest Rate (RIR) has a profound impact on the well-functioning of any economy hence a good understanding of its behavior is a key policy element. Using a Keynesian framework, we model and empirically test the relationship of RIR to selected structural variables namely inequality, dependency, financial depth, and institutional set up. We employ a panel dataset comprised of 115 countries with annual frequency from the period 2000 to 2018. Considering the structure of the dataset and possible endogeneity in the model; System GMM is used to estimate regressions parameters. We found that inequality and dependency do not have a significant influence on RIR. Financial development contributes to improving efficiency while institutional set up has a quadratic relationship with RIR. The better institution first increases RIR; after passing a certain cut off; further institution development would improve efficiency. RIR is found to be significantly procyclical. Further elaboration on the model; also revealed two different global RIR regimes with 2008 as threshold. There is also a significant counter cycle impact of financial development: negative interaction effect with the business cycle.

This study aims to analyse the impact of domestic debt on private investment in the Gambia by developing an investment model based on the neoclassical investment function and considered an annual time series data set from 1980 to 2013. To examine the nexus between our dependent variable, private investment and the explanatory variables, we used an Autoregressive Distributed Lag (ARDL) model. Based on the bounds test result, a long run relationship exists between our variables. Furthermore, domestic debt was found to have a negative effect on private investment in the short run but not in the long run. On the other hand, the real interest rates had a crowding-out effect on private investment in the long run but a positive effect in the short run. This study will be a guide for policymakers on formulating fiscal and monetary policies to curb the level of domestic borrowing to optimal or sustainable levels.

Real interest rates in Brazil converged to zero in 2020, but increased again in 2021. This paper aims to measure the equilibrium interest rate to assess the stance of monetary policy. We calculate this latent variable using different methodologies, including a version of Laubach andWilliams (2003) with fiscal and credit variables. Based on this approach, the long-run equilibrium rate is in the range of 2-4%, depending on the output gap and risk scenario. Our sensitivity analysis shows that results change slightly in different scenarios of Brazil risk premium and US interest rate. Since 2019, the effective real rate is significantly below the neutral rate and slightly below the Taylor rate, indicating an expansionary monetary policy, but since 2021 is back in a contractionary mode. [ABSTRACT FROM AUTHOR]

Housing affordability is one of the major social problems in many countries, with some advocates urging governments to provide more accessible mortgages to facilitate more homeownership. However, in recent decades more and more evidence has shown that unaffordable housing is the consequence of monetary policy. Most of the previous empirical studies have been based on econometric analyses, which make it hard to eliminate potential endogeneity biases. This cross-country study exploited the two global interest rate shocks as quasi-experiments to test the impacts and causality of monetary policy (taking real interest rates as a proxy) on house prices. Global central banks’ synchronized reduction in interest rates after the outbreak of the COVID-19 pandemic in 2020 and then the global synchronized increase in interest rates after the global inflation crisis in 2022 provided both a treatment and a treatment reversal to test the monetary policy hypothesis. The stylized facts vividly reveal the negative association between interest rate changes and house price changes in many countries. This study further conducted a ten-country panel regression analysis to test the hypothesis. The results confirmed that, after controlling for GDP growth and unemployment factors, the change in real interest rate imposed a negative effect on house price growth rates. The key practical implication of this study pinpoints the mal-prescription of harnessing monetary policy to solve housing affordability issues, as it can distort housing market dynamics.

The proposed model estimation of the natural interest rate for Bulgaria is based on the seminal model of Laubach and Williams (2003), as important modifications are implemented in order to capture the specifics of the Bulgarian economy. As a small and open economy, the real effective exchange rate is included in measurement equations as well as the Eurozone output gap. Second, we incorporate stylised facts and observations about the behaviour of the Bulgarian economy, such as the steady-state growth rates of potential output and initial guidance about the level of natural interest rates. We circumvent the "pile-up" issue by imposing certain assumptions about the level and growth rates of potential output and time preferences of economic agents. In order to validate the consistency and reliability of the assumptions, we counterfactually evaluate the past and present BG monetary conditions by estimating the real rate gap, i.e. compare the observed real interest rate (r) against the natural rate (r*). We find that, contrary to many advanced economies, the natural real interest rate of the Bulgarian economy does not show a declining trend, i.e. the economy after 2008, i.e. it is not under the precondition of "secular stagnation". This means that BNB's monetary space is far from being exhausted so far. This is due to the fact, that Bulgarian productivity growth (as a catching-up economy) is predominantly exogenous (imported) and the growth rate of productivity proved sustainable even after 2008 and well compensates for the detrimental demographics. The results from the Taylor rule exercise confirm counterfactually, that the Bulgarian short term interest rates are justified, thus the transition to the inflation targeting regime of ECB is expected to be smooth. [ABSTRACT FROM AUTHOR]

There are substantial rebounds in house prices in many developed economies after the outbreak of COVID-19. It provides a special opportunity to test the real interest rate hypothesis empirically as a “synchronized” price rebound implies a common cause of house price hikes across the economies. This study conducts a panel regression analysis on five economies, namely Australia, Canada, European Union, New Zealand, the United Kingdom, and the United States of America, to test the hypothesis. The data range from 2017Q1 to 2021Q1. The results confirm that the real interest rate imposes a negative and significant effect on house price growth rate after controlling for economic growth factors, unemployment factors, and cross-country fixed effects. The empirical result of the five housing markets shows that a 1% fall in the real interest rate caused a 1.5% increase in house prices, ceteris paribus, in this period. It also provides casual evidence refuting the economic growth hypothesis and the migrant hypothesis in New Zealand. The results provide far-reaching practical implications on housing policy and on the ways forward to solve housing affordability problems. [ABSTRACT FROM AUTHOR]

In this paper, we investigate Islamic monetary policy and proposes an alternative monetary policy instrument, namely gross domestic products (GDP) growth link instrument. The modeling techniques applied are ordinary least square (OLS) and the method is applied to a dataset of 99 countries for the year 2012 and time series data for Malaysia over the period of 1983-2013. Moreover, six months (January – June 2014) daily data on Islamic and conventional interbank rates are used for the correlational study. The results tend to show that GDP growth rate adjusted for interest income and inflation can be set as a benchmark for money market instruments and reference rate for financial and capital market to set the cost of capital or rate of return. Also, we found that real interest rate is mostly not representative across 99 countries as most of the time policy rates are either determined in the money market which is usually disintegrated with the real sector of an economy, or it is fixed by the Central Bank. Islamic and conventional money market rates are found significantly correlated in the presence of dual banking system. Moreover, inflation and employment rate in the Organisation of Islamic Cooperation (OIC) countries are found higher than non-OIC countries. Therefore, the interest rate should be replaced with more representative policy rate like the GDP growth rate linked instrument which could provide a benchmark rate for pricing products in Islamic commercial banking, and an avenue for investment in the Islamic financial market.13