Phillippe Aghion and Abhijit Banerjee
- Published in print:
- 2005
- Published Online:
- January 2007
- ISBN:
- 9780199248612
- eISBN:
- 9780191714719
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199248612.003.0002
- Subject:
- Economics and Finance, Development, Growth, and Environmental
One of the core assumptions of the neoclassical model is that there is a single market interest rate and every firm invests to the point where their marginal product is equal to this rate. There is a ...
More
One of the core assumptions of the neoclassical model is that there is a single market interest rate and every firm invests to the point where their marginal product is equal to this rate. There is a large body of research showing that this neoclassical postulate often does a very poor job of describing reality. It is shown that there seems to be clear evidence that the typical firm, at least in the developing world, has a marginal product which is substantially above the market interest rate. This suggests that the firm cannot borrow as much as it wants at the going market rate. In other words, the supply curve of capital to the firm must be upward sloping, or even vertical (a hard limit on how much the firm can borrow). A simple model is sketched that explains why lenders impose limits on how much firms can borrow.Less
One of the core assumptions of the neoclassical model is that there is a single market interest rate and every firm invests to the point where their marginal product is equal to this rate. There is a large body of research showing that this neoclassical postulate often does a very poor job of describing reality. It is shown that there seems to be clear evidence that the typical firm, at least in the developing world, has a marginal product which is substantially above the market interest rate. This suggests that the firm cannot borrow as much as it wants at the going market rate. In other words, the supply curve of capital to the firm must be upward sloping, or even vertical (a hard limit on how much the firm can borrow). A simple model is sketched that explains why lenders impose limits on how much firms can borrow.
Joseph E. Stiglitz, José Antonio Ocampo, Shari Spiegel, Ricardo Ffrench-Davis, and Deepak Nayyar
- Published in print:
- 2006
- Published Online:
- September 2006
- ISBN:
- 9780199288144
- eISBN:
- 9780191603884
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199288143.003.0006
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This chapter extends the analysis of the previous chapter to an open economy by introducing exchange rate policy; analyzing the complex relationships between exchange rate, fiscal, and monetary ...
More
This chapter extends the analysis of the previous chapter to an open economy by introducing exchange rate policy; analyzing the complex relationships between exchange rate, fiscal, and monetary policies; and examining the ways in which capital flows complicate traditional analyses. Despite the greater complexities associated with open economy macroeconomics, the policy conclusions for a closed economy remain remarkably unaffected. While Keynesians and heterodox economists believe that government should actively intervene, conservatives remain skeptical about the desirability of such interventions. The objective of this chapter is to shed some light on how economists can come to such diverse views on economic policy. The first section examines the macroeconomic effects of exchange rates on employment, trade, inflation, aggregate demand, growth, and balance sheets. The second section examines the complex interactions between fiscal, monetary, and exchange rate policies in open economies with either fixed or flexible exchange rate regimes. This section also examines the effects of interest rates and exchange rates on capital flows in both crisis and non-crisis situations.Less
This chapter extends the analysis of the previous chapter to an open economy by introducing exchange rate policy; analyzing the complex relationships between exchange rate, fiscal, and monetary policies; and examining the ways in which capital flows complicate traditional analyses. Despite the greater complexities associated with open economy macroeconomics, the policy conclusions for a closed economy remain remarkably unaffected. While Keynesians and heterodox economists believe that government should actively intervene, conservatives remain skeptical about the desirability of such interventions. The objective of this chapter is to shed some light on how economists can come to such diverse views on economic policy. The first section examines the macroeconomic effects of exchange rates on employment, trade, inflation, aggregate demand, growth, and balance sheets. The second section examines the complex interactions between fiscal, monetary, and exchange rate policies in open economies with either fixed or flexible exchange rate regimes. This section also examines the effects of interest rates and exchange rates on capital flows in both crisis and non-crisis situations.
Lyn C. Thomas
- Published in print:
- 2009
- Published Online:
- May 2009
- ISBN:
- 9780199232130
- eISBN:
- 9780191715914
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199232130.003.0003
- Subject:
- Mathematics, Applied Mathematics, Mathematical Finance
This chapter builds models to determine the ‘price’ (interest rate) a lender should charge on a loan to maximize the expected profit, taking into account both the default risk of the borrower and the ...
More
This chapter builds models to determine the ‘price’ (interest rate) a lender should charge on a loan to maximize the expected profit, taking into account both the default risk of the borrower and the relationship between response (take up) rate and the price charged. Starting with a simple two-price model, it extends the ideas to risk-based pricing, including how adverse selection and affordability of repayments can be included in the model. It investigates acceptance scoring where one determines what other non-price features should be offered as part of the loan to maximize the acceptance rate and hence the profitability of the loan. It develops a game theory model based on the Edgeworth market game, which allows for the trade-offs that lenders have between profit and market share, and that borrowers have between interest rate charged and credit limit.Less
This chapter builds models to determine the ‘price’ (interest rate) a lender should charge on a loan to maximize the expected profit, taking into account both the default risk of the borrower and the relationship between response (take up) rate and the price charged. Starting with a simple two-price model, it extends the ideas to risk-based pricing, including how adverse selection and affordability of repayments can be included in the model. It investigates acceptance scoring where one determines what other non-price features should be offered as part of the loan to maximize the acceptance rate and hence the profitability of the loan. It develops a game theory model based on the Edgeworth market game, which allows for the trade-offs that lenders have between profit and market share, and that borrowers have between interest rate charged and credit limit.
J. C. R. Dow and I. D. Saville
- Published in print:
- 1990
- Published Online:
- November 2003
- ISBN:
- 9780198283195
- eISBN:
- 9780191596186
- Item type:
- book
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198283199.001.0001
- Subject:
- Economics and Finance, Macro- and Monetary Economics
This book has been written to work on two levels. On the one hand, it provides a theory of monetary policy, focusing on the role of the central bank in determining and effecting policy. It also ...
More
This book has been written to work on two levels. On the one hand, it provides a theory of monetary policy, focusing on the role of the central bank in determining and effecting policy. It also examines the relationship of the central banks to the public and private sectors. Both authors have extensive experience working in the Bank of England, and so are attempting to transfer this experience to the area of economic theory. The theoretical analysis is complemented by an examination of the successes and failures of monetary policy in the UK from the mid‐1960s. As such, the book acts as an important work for students of economics and economic theory, but is also accessible to those involved in policy‐making, journalism, and other interested parties.Less
This book has been written to work on two levels. On the one hand, it provides a theory of monetary policy, focusing on the role of the central bank in determining and effecting policy. It also examines the relationship of the central banks to the public and private sectors. Both authors have extensive experience working in the Bank of England, and so are attempting to transfer this experience to the area of economic theory. The theoretical analysis is complemented by an examination of the successes and failures of monetary policy in the UK from the mid‐1960s. As such, the book acts as an important work for students of economics and economic theory, but is also accessible to those involved in policy‐making, journalism, and other interested parties.
Young‐Iob Chung
- Published in print:
- 2007
- Published Online:
- September 2007
- ISBN:
- 9780195325454
- eISBN:
- 9780199783908
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780195325454.003.0005
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This chapter analyzes the sources, magnitude, and means of financing investments in public and private enterprises after the Korean War. The analysis considers the credit policies relative to ...
More
This chapter analyzes the sources, magnitude, and means of financing investments in public and private enterprises after the Korean War. The analysis considers the credit policies relative to economic sectors (e.g., industry, mining, trade, and agriculture); industrial sectors (e.g., social overhead capital and manufacturing); the nature of investment (e.g., “entrepreneurial”, capital-, and technological-intensities in industries, the scale of business), and loan terms. This chapter also evaluates the criteria used to allocate loans, as well as the sources of financial resources obtained by the domestic lending institutions. The government interest rate policy is also examined.Less
This chapter analyzes the sources, magnitude, and means of financing investments in public and private enterprises after the Korean War. The analysis considers the credit policies relative to economic sectors (e.g., industry, mining, trade, and agriculture); industrial sectors (e.g., social overhead capital and manufacturing); the nature of investment (e.g., “entrepreneurial”, capital-, and technological-intensities in industries, the scale of business), and loan terms. This chapter also evaluates the criteria used to allocate loans, as well as the sources of financial resources obtained by the domestic lending institutions. The government interest rate policy is also examined.
John P. Burkett
- Published in print:
- 2006
- Published Online:
- October 2011
- ISBN:
- 9780195189629
- eISBN:
- 9780199850778
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780195189629.003.0016
- Subject:
- Economics and Finance, Microeconomics
This chapter examines issues related to the economics of time. It explains that in addition to its application in the calculation of interest rate or the price for the use of money for a period of ...
More
This chapter examines issues related to the economics of time. It explains that in addition to its application in the calculation of interest rate or the price for the use of money for a period of time, the economics of time can also be applied to decisions about when to make the transition from school to work. Empirical evidence from the US indicates that each additional year of schooling raises earnings by about 10%. This chapter also provides several relevant computational exercises and solutions.Less
This chapter examines issues related to the economics of time. It explains that in addition to its application in the calculation of interest rate or the price for the use of money for a period of time, the economics of time can also be applied to decisions about when to make the transition from school to work. Empirical evidence from the US indicates that each additional year of schooling raises earnings by about 10%. This chapter also provides several relevant computational exercises and solutions.
J. C. R. Dow and I. D. Saville
- Published in print:
- 1990
- Published Online:
- November 2003
- ISBN:
- 9780198283195
- eISBN:
- 9780191596186
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198283199.003.0004
- Subject:
- Economics and Finance, Macro- and Monetary Economics
This is a continuation of the previous chapter, but focuses on the institutional process at work in a central bank rather than theory. It examines the effects of central‐bank policy on base interest ...
More
This is a continuation of the previous chapter, but focuses on the institutional process at work in a central bank rather than theory. It examines the effects of central‐bank policy on base interest rates and on what basis policy is formed. It comments on the relationship between the rates set by the central bank in relation to other banking institutions. The authors compare their discussion to Keynes's general theory and found some similarities, but also some differences. They also examined it in comparison to Hick's IS/LM curve. The chapter ends with an analysis of interest rates since 1971.Less
This is a continuation of the previous chapter, but focuses on the institutional process at work in a central bank rather than theory. It examines the effects of central‐bank policy on base interest rates and on what basis policy is formed. It comments on the relationship between the rates set by the central bank in relation to other banking institutions. The authors compare their discussion to Keynes's general theory and found some similarities, but also some differences. They also examined it in comparison to Hick's IS/LM curve. The chapter ends with an analysis of interest rates since 1971.
Jerome L. Stein
- Published in print:
- 1998
- Published Online:
- November 2003
- ISBN:
- 9780198293064
- eISBN:
- 9780191596940
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198293062.003.0002
- Subject:
- Economics and Finance, Macro- and Monetary Economics, International
To what extent has the real exchange rate of the US dollar been as stable as is justified by the ”fundamentals” – fiscal policy, private saving ratio, productivity, rate of return on investment, real ...
More
To what extent has the real exchange rate of the US dollar been as stable as is justified by the ”fundamentals” – fiscal policy, private saving ratio, productivity, rate of return on investment, real long‐term rate of interest? What factors can explain the persistent and large deviations from purchasing power parity? How can we calculate whether the US dollar is over or undervalued? What has produced the US current account deficits? How do international financial markets affect the responses of the US economy to internal and external disturbances?Less
To what extent has the real exchange rate of the US dollar been as stable as is justified by the ”fundamentals” – fiscal policy, private saving ratio, productivity, rate of return on investment, real long‐term rate of interest? What factors can explain the persistent and large deviations from purchasing power parity? How can we calculate whether the US dollar is over or undervalued? What has produced the US current account deficits? How do international financial markets affect the responses of the US economy to internal and external disturbances?
Katarina Juselius
- Published in print:
- 2013
- Published Online:
- October 2017
- ISBN:
- 9780691155234
- eISBN:
- 9781400846450
- Item type:
- chapter
- Publisher:
- Princeton University Press
- DOI:
- 10.23943/princeton/9780691155234.003.0011
- Subject:
- Economics and Finance, Macro- and Monetary Economics
This chapter examines the relationship between speculation in the currency markets and aggregate activity in the real economy by drawing on the Structural Slumps theory and the theory of Imperfect ...
More
This chapter examines the relationship between speculation in the currency markets and aggregate activity in the real economy by drawing on the Structural Slumps theory and the theory of Imperfect Knowledge Economics (IKE). It first considers exchange rate determination in two models, one based on the Rational Expectations Hypothesis (REH) and the other on the theory of IKE, before discussing some general principles for how to structure the observed persistence in the data, and how these principles can be used in the cointegrated vector autoregressive model. The chapter also explains how foreign currency speculation under IKE interacts with a customer market economy where profit shares are adjusting to fluctuations in real exchange rates and where the natural rate of unemployment is a function of nonstationary real long-term interest rates.Less
This chapter examines the relationship between speculation in the currency markets and aggregate activity in the real economy by drawing on the Structural Slumps theory and the theory of Imperfect Knowledge Economics (IKE). It first considers exchange rate determination in two models, one based on the Rational Expectations Hypothesis (REH) and the other on the theory of IKE, before discussing some general principles for how to structure the observed persistence in the data, and how these principles can be used in the cointegrated vector autoregressive model. The chapter also explains how foreign currency speculation under IKE interacts with a customer market economy where profit shares are adjusting to fluctuations in real exchange rates and where the natural rate of unemployment is a function of nonstationary real long-term interest rates.
Jean Drèze, Peter Lanjouw, and Naresh Sharma
- Published in print:
- 1998
- Published Online:
- November 2003
- ISBN:
- 9780198288329
- eISBN:
- 9780191596599
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198288328.003.0009
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This chapter studies the credit market in Palanpur. Credit sources in the village are analysed and it is shown that the market in Palanpur is highly segmented. Both public and private sources of ...
More
This chapter studies the credit market in Palanpur. Credit sources in the village are analysed and it is shown that the market in Palanpur is highly segmented. Both public and private sources of credit are studied, and it is shown that even within these broad categories, segmentation exists. Each segment of the credit market is studied in detail. The evolution and determination of interest rates are discussed. Access to credit by the poor is analysed and their dependence on moneylenders is documented. Findings are compared with those from other village studies in India.Less
This chapter studies the credit market in Palanpur. Credit sources in the village are analysed and it is shown that the market in Palanpur is highly segmented. Both public and private sources of credit are studied, and it is shown that even within these broad categories, segmentation exists. Each segment of the credit market is studied in detail. The evolution and determination of interest rates are discussed. Access to credit by the poor is analysed and their dependence on moneylenders is documented. Findings are compared with those from other village studies in India.
Hans Degryse, Moshe Kim, and Steven Ongena
- Published in print:
- 2009
- Published Online:
- October 2011
- ISBN:
- 9780195340471
- eISBN:
- 9780199852406
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780195340471.003.0011
- Subject:
- Economics and Finance, Microeconomics
This chapter provides an epilogue on the banking crisis of 2007–2008. It briefly discusses empirical work that investigates one of the root causes of the banking crisis: the abundance of liquidity ...
More
This chapter provides an epilogue on the banking crisis of 2007–2008. It briefly discusses empirical work that investigates one of the root causes of the banking crisis: the abundance of liquidity and low short-term interest rates. When monetary policy is expansive, not only do banks give more loans to borrowers with either a bad or no credit history, but also the new loans themselves are more hazardous. Major problems in the credit markets first surfaced in the summer of 2007. Since then, liquidity has recurrently evaporated almost entirely from the interbank markets, and central banks have intervened worldwide on a scale not often seen before. This banking crisis is a source for research for many years to come.Less
This chapter provides an epilogue on the banking crisis of 2007–2008. It briefly discusses empirical work that investigates one of the root causes of the banking crisis: the abundance of liquidity and low short-term interest rates. When monetary policy is expansive, not only do banks give more loans to borrowers with either a bad or no credit history, but also the new loans themselves are more hazardous. Major problems in the credit markets first surfaced in the summer of 2007. Since then, liquidity has recurrently evaporated almost entirely from the interbank markets, and central banks have intervened worldwide on a scale not often seen before. This banking crisis is a source for research for many years to come.
Edmund Cannon and Ian Tonks
- Published in print:
- 2008
- Published Online:
- January 2009
- ISBN:
- 9780199216994
- eISBN:
- 9780191711978
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199216994.003.0010
- Subject:
- Business and Management, Pensions and Pension Management
This chapter examines the supply of annuities, and discusses the regulatory framework. It discusses the market share of annuity business in the UK and the risk-management of annuity contracts by ...
More
This chapter examines the supply of annuities, and discusses the regulatory framework. It discusses the market share of annuity business in the UK and the risk-management of annuity contracts by annuity providers, in relation to interest rate risk and cohort-mortality risk.Less
This chapter examines the supply of annuities, and discusses the regulatory framework. It discusses the market share of annuity business in the UK and the risk-management of annuity contracts by annuity providers, in relation to interest rate risk and cohort-mortality risk.
Guay C. Lim and Jerome L. Stein
- Published in print:
- 1998
- Published Online:
- November 2003
- ISBN:
- 9780198293064
- eISBN:
- 9780191596940
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198293062.003.0003
- Subject:
- Economics and Finance, Macro- and Monetary Economics, International
The underlying movements in the equilibrium real exchange rate – NATREX – in Australia are explained by the evolution of the fundamentals. They are: the terms of trade, the private saving ratio, ...
More
The underlying movements in the equilibrium real exchange rate – NATREX – in Australia are explained by the evolution of the fundamentals. They are: the terms of trade, the private saving ratio, fiscal policy, the productivity of capital in the tradable and nontradable sectors, and world real interest rates. Real trade deficits and the growth of the debt are initially produced by a rise in the productivity of capital, which stimulates investment or a decline in social thrift. The foreign debt is only a source of concern if it has resulted from a decline in the social saving ratio. Social policies designed to reduce a trade deficit that adversely affect growth are counterproductive.Less
The underlying movements in the equilibrium real exchange rate – NATREX – in Australia are explained by the evolution of the fundamentals. They are: the terms of trade, the private saving ratio, fiscal policy, the productivity of capital in the tradable and nontradable sectors, and world real interest rates. Real trade deficits and the growth of the debt are initially produced by a rise in the productivity of capital, which stimulates investment or a decline in social thrift. The foreign debt is only a source of concern if it has resulted from a decline in the social saving ratio. Social policies designed to reduce a trade deficit that adversely affect growth are counterproductive.
J. C. R. Dow and I. D. Saville
- Published in print:
- 1990
- Published Online:
- November 2003
- ISBN:
- 9780198283195
- eISBN:
- 9780191596186
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198283199.003.0003
- Subject:
- Economics and Finance, Macro- and Monetary Economics
A theoretical discussion on central‐bank effects on interest rates forms the substance of this chapter. It focuses on the actions that effect interest rates in the short term. This is at odds with ...
More
A theoretical discussion on central‐bank effects on interest rates forms the substance of this chapter. It focuses on the actions that effect interest rates in the short term. This is at odds with much of the theoretical literature on this subject that opts for a more long‐term approach. It discusses equilibrium models of interest rates and presents two sections discussing both classical and multiplier adjustments, and the effects of long‐term future expectations on rates in the short term.Less
A theoretical discussion on central‐bank effects on interest rates forms the substance of this chapter. It focuses on the actions that effect interest rates in the short term. This is at odds with much of the theoretical literature on this subject that opts for a more long‐term approach. It discusses equilibrium models of interest rates and presents two sections discussing both classical and multiplier adjustments, and the effects of long‐term future expectations on rates in the short term.
Angus Deaton
- Published in print:
- 1992
- Published Online:
- November 2003
- ISBN:
- 9780198288244
- eISBN:
- 9780191596131
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198288247.003.0002
- Subject:
- Economics and Finance, Macro- and Monetary Economics
Presents both theoretical and empirical evidence for the claim that growth in earnings generates higher saving (the growth‐to‐saving hypothesis). It also presents a number of theoretical and ...
More
Presents both theoretical and empirical evidence for the claim that growth in earnings generates higher saving (the growth‐to‐saving hypothesis). It also presents a number of theoretical and empirical models aimed at explaining the connection between interest rates and intertemporal substitution.Less
Presents both theoretical and empirical evidence for the claim that growth in earnings generates higher saving (the growth‐to‐saving hypothesis). It also presents a number of theoretical and empirical models aimed at explaining the connection between interest rates and intertemporal substitution.
Guonan Ma and Robert N. McCauley
- Published in print:
- 2008
- Published Online:
- May 2008
- ISBN:
- 9780199235889
- eISBN:
- 9780191717109
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199235889.003.0012
- Subject:
- Economics and Finance, South and East Asia
This chapter examines both price and flow evidence to determine how effective China's capital controls have been in the past and remain at present. Section 12.2 describes the increasing openness of ...
More
This chapter examines both price and flow evidence to determine how effective China's capital controls have been in the past and remain at present. Section 12.2 describes the increasing openness of the Chinese economy to cross-border flows as background for both price and flow analysis. Section 12.3 reviews and updates the price evidence that capital controls are still binding. Section 12.4 examines the gap between renminbi and US dollar short-term interest rates during the period of de facto dollar pegging of the renminbi between the mid-1990s and July 2005, arguing that these rates converged soon after China's inflation had fallen from double-digit levels in the early 1990s. Section 12.5 demonstrates the responsiveness of various measures of capital flows to interest-rate differentials and exchange-rate expectations. Section 12.6 discusses challenges to China's capital account liberalization.Less
This chapter examines both price and flow evidence to determine how effective China's capital controls have been in the past and remain at present. Section 12.2 describes the increasing openness of the Chinese economy to cross-border flows as background for both price and flow analysis. Section 12.3 reviews and updates the price evidence that capital controls are still binding. Section 12.4 examines the gap between renminbi and US dollar short-term interest rates during the period of de facto dollar pegging of the renminbi between the mid-1990s and July 2005, arguing that these rates converged soon after China's inflation had fallen from double-digit levels in the early 1990s. Section 12.5 demonstrates the responsiveness of various measures of capital flows to interest-rate differentials and exchange-rate expectations. Section 12.6 discusses challenges to China's capital account liberalization.
Hendrik S. Houthakker and Peter J. Williamson
- Published in print:
- 1996
- Published Online:
- November 2003
- ISBN:
- 9780195044072
- eISBN:
- 9780199832958
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/019504407X.003.0002
- Subject:
- Economics and Finance, Financial Economics
Some of the frameworks and concepts of macroeconomics are deployed to explore the place of financial markets in the US economy, and various important questions are introduced (such as how interest ...
More
Some of the frameworks and concepts of macroeconomics are deployed to explore the place of financial markets in the US economy, and various important questions are introduced (such as how interest rates are determined) that are elaborated upon in later chapters. The first section of the chapter looks at real assets and financial claims – balance sheets for the US economy, the US international investment position, and distribution of financial assets. In the second section – A framework for macroeconomic analysis of flows – one of the main tools of analysis used is the National Income and Product Accounts (NIPA), which extend the accounting concepts developed in Ch. 1 to the economy as a whole; these accounts are combined with the Flow of Funds (FOF) accounts into a framework for describing supply and demand in the securities markets. The third section discusses the rate of interest. The framework presented in the second section is then used to discuss the effects of monetary and fiscal policy and of inflation, particularly on interest rates and securities prices.Less
Some of the frameworks and concepts of macroeconomics are deployed to explore the place of financial markets in the US economy, and various important questions are introduced (such as how interest rates are determined) that are elaborated upon in later chapters. The first section of the chapter looks at real assets and financial claims – balance sheets for the US economy, the US international investment position, and distribution of financial assets. In the second section – A framework for macroeconomic analysis of flows – one of the main tools of analysis used is the National Income and Product Accounts (NIPA), which extend the accounting concepts developed in Ch. 1 to the economy as a whole; these accounts are combined with the Flow of Funds (FOF) accounts into a framework for describing supply and demand in the securities markets. The third section discusses the rate of interest. The framework presented in the second section is then used to discuss the effects of monetary and fiscal policy and of inflation, particularly on interest rates and securities prices.
Claus Munk
- Published in print:
- 2011
- Published Online:
- September 2011
- ISBN:
- 9780199575084
- eISBN:
- 9780191728648
- Item type:
- book
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199575084.001.0001
- Subject:
- Economics and Finance, Financial Economics
This book offers a unified presentation of dynamic term structure models and their applications to the pricing and risk management of fixed income securities. The basic fixed income securities and ...
More
This book offers a unified presentation of dynamic term structure models and their applications to the pricing and risk management of fixed income securities. The basic fixed income securities and their properties and uses as well as the relations between these securities are explained. The book presents and compares the classical affine models, Heath–Jarrow–Morton models, and LIBOR market models, and demonstrates how to apply those models for the pricing of various widely traded fixed income securities. The book has a number of distinctive features compared to other fixed-income texts. It offers a balanced presentation with both formal mathematical modelling and economic intuition and understanding. A separate chapter gives an introduction to stochastic processes and the stochastic calculus needed for the modern financial modelling approach used in the book. A separate chapter explains how the term structure of interest rates relates to macro-economic variables and to what extent the concrete interest rate models are founded in general economic theory. The book focuses on the most widely used models and the main fixed income securities, instead of trying to cover all the many specialized models and the countless exotic real-life products. The detailed explanation of the main pricing principles, techniques, and models as well as their application to the most important types of securities will help with the understanding and application of other models and price other securities. The book includes separate chapters on interest rate risk management, credit risk, mortgage-backed securities, and relevant numerical techniques.Less
This book offers a unified presentation of dynamic term structure models and their applications to the pricing and risk management of fixed income securities. The basic fixed income securities and their properties and uses as well as the relations between these securities are explained. The book presents and compares the classical affine models, Heath–Jarrow–Morton models, and LIBOR market models, and demonstrates how to apply those models for the pricing of various widely traded fixed income securities. The book has a number of distinctive features compared to other fixed-income texts. It offers a balanced presentation with both formal mathematical modelling and economic intuition and understanding. A separate chapter gives an introduction to stochastic processes and the stochastic calculus needed for the modern financial modelling approach used in the book. A separate chapter explains how the term structure of interest rates relates to macro-economic variables and to what extent the concrete interest rate models are founded in general economic theory. The book focuses on the most widely used models and the main fixed income securities, instead of trying to cover all the many specialized models and the countless exotic real-life products. The detailed explanation of the main pricing principles, techniques, and models as well as their application to the most important types of securities will help with the understanding and application of other models and price other securities. The book includes separate chapters on interest rate risk management, credit risk, mortgage-backed securities, and relevant numerical techniques.
J. C. R. Dow and I. D. Saville
- Published in print:
- 1990
- Published Online:
- November 2003
- ISBN:
- 9780198283195
- eISBN:
- 9780191596186
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198283199.003.0008
- Subject:
- Economics and Finance, Macro- and Monetary Economics
The use of bank rates acting as a source of control is the focus of this chapter. It examines the imposition of the Minimum Lending Rate in 1972. The role of the central bank in setting rates and ...
More
The use of bank rates acting as a source of control is the focus of this chapter. It examines the imposition of the Minimum Lending Rate in 1972. The role of the central bank in setting rates and their ability to force up rates is examined. There is a discussion on the role of central bank reserves. The limitations of central bank's powers are also studied. The chapter concludes with an analysis of monetary aggregates.Less
The use of bank rates acting as a source of control is the focus of this chapter. It examines the imposition of the Minimum Lending Rate in 1972. The role of the central bank in setting rates and their ability to force up rates is examined. There is a discussion on the role of central bank reserves. The limitations of central bank's powers are also studied. The chapter concludes with an analysis of monetary aggregates.
Vijay Joshi and I. M. D. Little
- Published in print:
- 1996
- Published Online:
- November 2003
- ISBN:
- 9780198290780
- eISBN:
- 9780191596506
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198290780.003.0004
- Subject:
- Economics and Finance, Development, Growth, and Environmental
Examines the financial sector, with the major focus being on India's banking institution. It provides a brief overview of the poor state of the banks in 1991, with the financial system on the brink ...
More
Examines the financial sector, with the major focus being on India's banking institution. It provides a brief overview of the poor state of the banks in 1991, with the financial system on the brink of collapse. This is followed by an analysis of how the sector was renewed by banks being recapitalized and by interest rate deregulation. It also analyses problems, such as non‐performing assets. It concludes with a brief analysis of other areas such as the capital market and insurance sectors.Less
Examines the financial sector, with the major focus being on India's banking institution. It provides a brief overview of the poor state of the banks in 1991, with the financial system on the brink of collapse. This is followed by an analysis of how the sector was renewed by banks being recapitalized and by interest rate deregulation. It also analyses problems, such as non‐performing assets. It concludes with a brief analysis of other areas such as the capital market and insurance sectors.
