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Mr. Robert P Flood

adoption of the real after the hyperinflation of the early 1990s and the flotation of the real in January 1999. Similar breaks are apparent for many other countries, including Indonesia, Italy, Korea, Malaysia, Mexico, Russia, and Thailand. The convergence of the EMS rates and the creation of the euro in 1999 are also apparent in the (non–German) EMU rates. Figure A2 is an analogue showing interest rates. Monthly interest rates are shown for all countries except for Russia (where weekly rates are shown, since the monthly series is short), Finland, and Korea (where

Mr. Andrew K. Rose and Mr. Robert P Flood
This paper tests for uncovered interest parity (UIP) using daily data for 23 developing and developed countries through the crisis-strewn 1990s. We find that UIP works better on average in the 1990s than in previous eras in the sense that the slope coefficient from a regression of exchange rate changes on interest differentials yields a positive coefficient (which is sometimes insignificantly different from unity). UIP works systematically worse for fixed and flexible exchange rate countries than for crisis countries, but we find no significant differences between rich and poor countries.
Mr. Si Guo, Mr. Philippe D Karam, and Mr. Jan Vlcek
Inflation rates rose sharply in the Philippines during 2018. Understanding the demand and supply sources of inflation pressures is key to monetary policy response. Qualitatively, indicators have pointed to evidence of inflation pressures from both sides in 2018, with the supply factors, by and large, associated with commodity-price shocks and demand factors deduced from gleaning at the wider non-oil trade deficits seen in the Philippines. Quantitatively, we deploy a semi-structural model to decompose the contributions of various shocks to inflation. Our main findings are (1) supply factors (mainly global commodity prices) played a prominent role in explaining the rise in inflation in 2018; (2) demand factors also contributed to inflation in a non-negligible way, justifying the need for tighter monetary policy in 2018; (3) the size of the estimated output gap (an important indicator of demand pressures) could be larger, when considering the widening trade deficits in 2018; and (4) a delayed monetary policy tightening can be costly in terms of higher inflation rates, requiring larger and more aggressive interest rate hikes to bring inflation under control, based on a counterfactual exercise.
Ms. Yan M Sun, Mr. Frigyes F Heinz, and Giang Ho
This paper uses the Global VAR (GVAR) model proposed by Pesaran et al. (2004) to study cross-country linkages among euro area countries, other advanced European countries (including the Nordics, the UK, etc.), and the Central, Eastern and Southeastern European (CESEE) countries. An innovative feature of the paper is the use of combined trade and financial weights (based on BIS reporting banks’ external position data) to capture the very close trade and financial ties of the CESEE countries with the advanced Europe countries. The results show strong co-movements in output growth and interest rates but weaker linkages bewteen inflation and real credit growth within Europe. While the euro area is the dominant source of economic influences, there are also interesting subregional linkages, e.g. between the Nordic and the Baltic countries, and a small but notable impact of CESEE countries on the rest of the Europe.
International Monetary Fund. Research Dept.
This paper reports for uncovered interest parity (UIP) using daily data for 23 developing and developed countries during the crisis-strewn 1990s. UIP is a classic topic of international finance, a critical building block of most theoretical models, and a dismal empirical failure. UIP states that the interest differential is, on average, equal to the ex post exchange rate change. UIP may work differently for countries in crisis, whose exchange and interest rates both display considerably more volatility. This volatility raises the stakes for financial markets and central banks; it also may provide a more statistically powerful test for the UIP hypothesis. Policy-exploitable deviations from UIP are, therefore, a necessary condition for an interest rate defense. There is a considerable amount of heterogeneity in the results, which differ wildly by country.
Mr. Robert P Flood
This paper explores sources of the output collapse in Russia during transition. A modified growth-accounting framework is developed that takes into account changes in factor utilization that are typical of the transition process. The results indicate that declines in factor inputs and productivity were both important determinants of the output fall. The paper analyzes the behavior of real commodity prices over the 1862–1999 progress. It also examines whether average stocks of health and education are converging across countries, and calculates the speed of their convergence using data from 84 countries for 1970–90.
Mr. Andrew K. Rose and Mr. Robert P Flood

January 1999. Similar breaks are apparent for many other countries, including: Indonesia, Italy, Korea, Malaysia, Mexico, Russia, and Thailand. The convergence of the EMS rates and the creation of the euro in 1999 are also apparent in the (nonGerman) EMU rates. Figure 1. Exchange Rate Data Figure 2 is an analogue showing interest rates. Monthly interest rates are shown for all countries except for Russia (where weekly rates are shown since the monthly series is short), Finland and Korea (where quarterly rates are shown for the same reason). 5 Here the

Mr. Si Guo, Mr. Philippe D Karam, and Mr. Jan Vlcek

in global commodity prices contributed substantially to the rise in inflation rates in the Philippines in 2018, with some delay noted in the pass-through of international oil and food prices. Domestically, inflation is also shown to be driven by demand factors attributed to a relatively accommodative monetary policy, with model estimates showing interest rate adjustments lagging the pace implied by the central bank’s inflation forecast-targeting interest rate rule before May 2018 (the onset of the tightening cyclical). Results also show that widening trade deficits

Ms. Yan M Sun, Mr. Frigyes F Heinz, and Giang Ho

.a.) Source: Haver Analytics. An interest rate shock in the ADV group, however, generally elicits a strong response on interest rates in advanced Europe, but weak response in CESEE countries. The results of interest rate responses from a shock to interest rate in the UK, Switzerland, Iceland, and Israel group (the ADV group) are shown in Figure 7 . There is a close link between interest rates in the UK and the Euro area as can be seen from the figure showing interest rates on government securities in Germany and the UK (see Figure). Given that the UK is the dominant