International Finance and Macroeconomics
Friday, Jan. 5, 2018 8:00 AM - 10:00 AM
- Chair: Nelson C. Mark, University of Notre Dame
The Interest Rate Effect on Private Saving: Alternative Perspectives
AbstractUsing an uneven panel of 135 countries from 1995 to 2014, we investigate the link between interest rates and private saving, and focus on whether the interest rate effect is dominated by the income (i.e., negative) or the substitution (i.e., positive) effect. With the baseline estimation, we find that the real interest rate has the substitution effect on private saving only for a full-country sample and a group of Asian economies. We also examine if low real - or nominal - interest rates have any impact on the link between the real interest rate and the private saving rate. We find that among developing countries, when the nominal interest rate is not too low, we detect the substitution effect of the real interest rate on private saving. However, among industrial and emerging economies, the substitution effect is detected only when the nominal interest rate is lower than 2.5%. In contrast, emerging-market Asian countries are found to have the income effect when the nominal interest rate is below 2.5%. When we examine the interactive effects between the real interest rate and the variables for economic conditions and policies, we find that the real interest rate has a negative impact - i.e., income effect - on private saving if any output volatility, old dependency, or financial development is above a certain threshold. Further, when the real interest rate is below 1.5%, greater output volatility would lead to higher private saving in developing countries. Lastly, we find that old dependency ratios, public healthcare expenditure, and financial development have negative impacts on private saving, but such impacts in absolute values tend to become smaller as the real interest rate becomes lower.
The International Listing Gap and the Macroeconomy
AbstractThe International Listing Gap and the Macroeconomy
Deviations from Covered Interest Rate Parity
AbstractWe find that deviations from the covered interest rate parity condition (CIP) imply large, persistent, and systematic arbitrage opportunities in one of the largest asset markets in the world. Contrary to the common view, these deviations for major currencies are not explained away by credit risk or transaction costs. They are particularly strong for forward contracts that appear on the banks’ balance sheets at the end of the quarter, pointing to a causal effect of banking regulation on asset prices. The CIP deviations also appear significantly correlated with other fixed-income spreads and with nominal interest rates.
- F3 - International Finance