The document discusses a study analyzing the relationship between monetary policy rates, credit risk measures, and commercial interest rates on business loans in Chile. It presents preliminary analysis showing no clear evidence of cointegrating relationships between the variables. The study then shifts to a univariate model allowing for asymmetric pass-through of policy rate changes and the role of monetary policy expectations. It notes some issues with autocorrelated residuals that are addressed by including MA terms in the residuals. The goal is to better quantify how credit risk changes impact the pass-through of policy rates to commercial lending rates.
Credit risks are calculated based on the borrowers’ overall ability to repay. Our objective was to use optimization in order to create a tool that approves or rejects loans to borrowers. We also used optimization to establish how much interest rate/credit will be extended to borrowers who were approved for a loan.
Credit risks are calculated based on the borrowers’ overall ability to repay. Our objective was to use optimization in order to create a tool that approves or rejects loans to borrowers. We also used optimization to establish how much interest rate/credit will be extended to borrowers who were approved for a loan.
Shunji Kakinaka - Asymmetric volatility dynamics in cryptocurrency markets京都大学大学院情報学研究科数理工学専攻
Presentation slides given at the AMP departmental seminar, May 31, 2021.
Shunji Kakinaka is a PhD student with the Physical Statistics Research Group, Department of Applied Mathematics and Physics (AMP), Graduate School of Informatics, Kyoto University.
Abstract:
Asymmetric correlation between price and volatility is a prominent feature of financial market time series. In this short presentation, the stylized facts of the relationship between price and volatility in cryptocurrency markets are introduced. In addition, the presence of asymmetric volatility effect between uptrend (bull) and downtrend (bear) regimes are investigated using the nonlinear cross-correlation coefficient measures.
Mitigating the Deadly Embrace in Financial Cycles: Countercyclical Buffers an...Joannes Mongardini
IMF Working Paper WP/16/87 providing macroprudential simulations of the effectiveness of countercyclical buffers and loan-to-value limits to mitigate housing bubbles and bursts
GEORGE MASON UNIVERSITYSchool of ManagementEMBA 703 Financia.docxbudbarber38650
GEORGE MASON UNIVERSITY
School of Management
EMBA 703 Financial Markets
Dr. Hanweck
Final Examination
Fall 2013
NAME: ___________________________________
G-code: _____________________________
Answer all questions. Place your answer to each question on a separate sheet of paper. Please write your name on the top left corner of each page. Document your answers and show your work. Read each question carefully and answer all parts. Try and answer something on each question. Your guess may turn out to be correct. The number in parentheses is the point weight for the question. Attach the exam to your answers.
(15)
1.(a)
Discuss various measures of capital market efficiency and how efficient capital markets contribute to the efficiency in the market for goods and services (including productive capital). As part of your discussion, consider the implications of the fact that the bulk of trading in capital markets is in outstanding securities and analyze the meaning of the terms "depth," "breadth," and "resiliency" as descriptions of capital markets. Include in your discussion the types of legislative and regulatory reforms that might be or have recently been instituted in order to improve the efficiency of capital markets and the role of "insider trading" and the SEC as they affect market efficiency.
(b)
Compare money and capital markets and identify the major issuers of securities in the different markets and the difference among the various types of securities within and between each of the markets. Within your discussion of the money markets include a consideration of the role of the Federal Reserve System (Fed) and the banking system as they interact through required reserve maintenance, needs for liquidity and monetary policy actions by the Fed. Consider in your analysis the types and significance of the links between the money and capital markets via the term structure of interest rates, issuers of debt and equity and the presence of interest rate and credit risk derivatives.
(10)
2. There are a number of theories of the term structure of interest rates including the unbiased expectations hypothesis, preferred habitat hypothesis, and market segmentation hypothesis. Discuss the implications of the unbiased expectations hypothesis within the context of the following problem. Problem 1: For a two year, default free, zero coupon security, compute its yield to maturity and draw the respective yield curves assuming two different expectations of inflation employing the Fisher Effect and the data below: (a) 4 percent one year from now, and (b) 2 percent one year from now. In addition, define and compute the implied forward yield on a one year security one year from now, assuming the current two year yield is 6.0 percent. Discuss the assumptions underlying this calculation and how it can be used to evaluate the implied forward yield on a 1-year loan, next year. (c) Wh.
QE and money market rates in the Euro areaBenoit Nguyen
Slides presented at the ECB in November. In this paper, we study the impact of the Eurosystem asset purchases on the repo rates. Full paper: https://publications.banque-france.fr/en/eurosystems-asset-purchases-and-money-market-rates
The aim of this study is to determining the factors which could affect the credit scoring to reveal the relationship between economical policies implemented in Turkey and the credit ratings given by credit scoring agencies with econometrics method along with comparisons among countries. When the countries own resources are not enaugh to finance economical growth, countries are needed for foreign investments.These foreign investments are wanted by countries as direct foreign investments or financial investments. Both kinds want to have a trust on types of economies to invest on them. For this reason it is needed to have a indicator for safety of a country to invest .The most important indicator developed for this purpose is credit rate. Thus, figures of GDP, Current Account Balance, Foreign Borrowing and Inflation of Turkey in the year of the 2000-2015 using parametric and semiparametric logit models. The semiparametric methods best fitting models using best fitting smoothing methods when the combines that best features of the parametric and nonparametric approaches when the parametric model violated. We used the data of IMF World Economic Outlook Database and IMF Article IV countries reports, Moody’s,Standart&Poors and Fitch main reports on site.
https://ijitce.com/index.php
Our journal maintains rigorous peer review standards. Each submitted article undergoes a thorough evaluation by experts in the respective field. This stringent review process helps ensure that only high-quality and scientifically sound research is accepted for publication. Researchers can trust that the articles they find in IJITCE have been critically assessed for validity, significance, and originality.
Shunji Kakinaka - Asymmetric volatility dynamics in cryptocurrency markets京都大学大学院情報学研究科数理工学専攻
Presentation slides given at the AMP departmental seminar, May 31, 2021.
Shunji Kakinaka is a PhD student with the Physical Statistics Research Group, Department of Applied Mathematics and Physics (AMP), Graduate School of Informatics, Kyoto University.
Abstract:
Asymmetric correlation between price and volatility is a prominent feature of financial market time series. In this short presentation, the stylized facts of the relationship between price and volatility in cryptocurrency markets are introduced. In addition, the presence of asymmetric volatility effect between uptrend (bull) and downtrend (bear) regimes are investigated using the nonlinear cross-correlation coefficient measures.
Mitigating the Deadly Embrace in Financial Cycles: Countercyclical Buffers an...Joannes Mongardini
IMF Working Paper WP/16/87 providing macroprudential simulations of the effectiveness of countercyclical buffers and loan-to-value limits to mitigate housing bubbles and bursts
GEORGE MASON UNIVERSITYSchool of ManagementEMBA 703 Financia.docxbudbarber38650
GEORGE MASON UNIVERSITY
School of Management
EMBA 703 Financial Markets
Dr. Hanweck
Final Examination
Fall 2013
NAME: ___________________________________
G-code: _____________________________
Answer all questions. Place your answer to each question on a separate sheet of paper. Please write your name on the top left corner of each page. Document your answers and show your work. Read each question carefully and answer all parts. Try and answer something on each question. Your guess may turn out to be correct. The number in parentheses is the point weight for the question. Attach the exam to your answers.
(15)
1.(a)
Discuss various measures of capital market efficiency and how efficient capital markets contribute to the efficiency in the market for goods and services (including productive capital). As part of your discussion, consider the implications of the fact that the bulk of trading in capital markets is in outstanding securities and analyze the meaning of the terms "depth," "breadth," and "resiliency" as descriptions of capital markets. Include in your discussion the types of legislative and regulatory reforms that might be or have recently been instituted in order to improve the efficiency of capital markets and the role of "insider trading" and the SEC as they affect market efficiency.
(b)
Compare money and capital markets and identify the major issuers of securities in the different markets and the difference among the various types of securities within and between each of the markets. Within your discussion of the money markets include a consideration of the role of the Federal Reserve System (Fed) and the banking system as they interact through required reserve maintenance, needs for liquidity and monetary policy actions by the Fed. Consider in your analysis the types and significance of the links between the money and capital markets via the term structure of interest rates, issuers of debt and equity and the presence of interest rate and credit risk derivatives.
(10)
2. There are a number of theories of the term structure of interest rates including the unbiased expectations hypothesis, preferred habitat hypothesis, and market segmentation hypothesis. Discuss the implications of the unbiased expectations hypothesis within the context of the following problem. Problem 1: For a two year, default free, zero coupon security, compute its yield to maturity and draw the respective yield curves assuming two different expectations of inflation employing the Fisher Effect and the data below: (a) 4 percent one year from now, and (b) 2 percent one year from now. In addition, define and compute the implied forward yield on a one year security one year from now, assuming the current two year yield is 6.0 percent. Discuss the assumptions underlying this calculation and how it can be used to evaluate the implied forward yield on a 1-year loan, next year. (c) Wh.
QE and money market rates in the Euro areaBenoit Nguyen
Slides presented at the ECB in November. In this paper, we study the impact of the Eurosystem asset purchases on the repo rates. Full paper: https://publications.banque-france.fr/en/eurosystems-asset-purchases-and-money-market-rates
The aim of this study is to determining the factors which could affect the credit scoring to reveal the relationship between economical policies implemented in Turkey and the credit ratings given by credit scoring agencies with econometrics method along with comparisons among countries. When the countries own resources are not enaugh to finance economical growth, countries are needed for foreign investments.These foreign investments are wanted by countries as direct foreign investments or financial investments. Both kinds want to have a trust on types of economies to invest on them. For this reason it is needed to have a indicator for safety of a country to invest .The most important indicator developed for this purpose is credit rate. Thus, figures of GDP, Current Account Balance, Foreign Borrowing and Inflation of Turkey in the year of the 2000-2015 using parametric and semiparametric logit models. The semiparametric methods best fitting models using best fitting smoothing methods when the combines that best features of the parametric and nonparametric approaches when the parametric model violated. We used the data of IMF World Economic Outlook Database and IMF Article IV countries reports, Moody’s,Standart&Poors and Fitch main reports on site.
https://ijitce.com/index.php
Our journal maintains rigorous peer review standards. Each submitted article undergoes a thorough evaluation by experts in the respective field. This stringent review process helps ensure that only high-quality and scientifically sound research is accepted for publication. Researchers can trust that the articles they find in IJITCE have been critically assessed for validity, significance, and originality.
Return Decomposition
By Long Chen and Xinlei Zhao
Presentation by Michael-Paul James
Directly modeling discount rate news and backing out cash flow news
adds residual news to the latter
○ The method has led to erroneous conclusions:
■ Larger relative DR variance
■ Value stocks earn higher returns due to higher βCF
■ βCF is more important than total βtotal
○ DR news cannot be accurately estimated (low predictive power)
and backed out CF news inherits large misspecification error of DR
○ Modeled Treasury bonds reveals higher CF variance with no real CF
risk
○ Minor changes in predictive variables produce opposite results
Directly modeling cash flow news, discount rate news, and residual
○ Value firms have both lower modeled CF betas and DR betas, but
higher residual betas, indicating that the results in the current
literature are driven by the residual news.
Competition and financial sector regulation in Malawi: to whom it may concern...IFPRIMaSSP
The study is premised on the central hypothesis that high market concentration in the banking sector can facilitate collusive pricing outcomes which can adversely impact the low-income and important but low-return segments of the economy and activities. The empirical results reported here are based on the period from January 2005 to March 2014 i.e. long after financial sector liberalization and after much new bank entry. From a policy and regulatory perspective there is no support for the expectation that market de-concentration would moderate margins as a result of competitive pricing on both the lending and deposit sides. The two-bank dominance in the sector and non-requirement for posting maximum lending rates have facilitated collusion on lending rates through price-leadership while smaller banks seeking market footholds have been leading the competition on deposits rates. In this context an environment of already high bank rates has moderated margins from the deposit side, which is good for the low-income. Other results also suggest non-price “monopolistic” competitiveness service provision and extension which would also be beneficial to consumers. But even the trend on lending rates is breaking away from leadership-followership as banks are compelled towards the Basel II standards and their tougher risk management and transparency requirements. Although margins do not appear to respond to inflationary tendencies, the actual spreads do so positively, inflicting a double blow on consumers through higher lending rates and/ suppressed deposit rates. From the banks’ side the major hurdles are seen as lack of a long-term securities market to provide bench marking especially for deposit rates and that the push towards the Basel II is itself unnecessary at this stage as it raises both costs and liquidity risk.
Eesti Panga president Madis Müller ja finantsstabiilsuse osakonna juhataja Jaak Tõrs tutvustasid kõigile majandushuvilistele äsja valminud Eesti finantssektori ülevaadet.
Majanduse Rahastamise Ülevaade. Veebruar 2023Eesti Pank
22.02.2023 Eesti Panga ökonomistid Taavi Raudsaar ja Mari Tamm tutvustasid äsja valminud Majanduse Rahastamise Ülevaadet ehk millised on Eesti majapidamiste ja ettevõtete rahastamisvõimalused.
Fabio Canovaand Evi Pappa. Costly disasters, energy consumption, and the role...Eesti Pank
Neljapäeval, 20. oktoobril 2022 toimus Eesti Panga avatud seminar, kus rahvusvaheliselt tunnustatud majandusteadlane Fabio Canova tutvustas koos Evi Pappaga valminud uurimustööd „Kulukad looduskatastroofid, energiatarbimine ning eelarvepoliitika“ (Costly disasters, energy consumption, and the role of fiscal policy).
Romain Duval. IMF Regional Economic Outlook for EuropeEesti Pank
31. oktoobril 2022 toimus Eesti Panga avatud seminar, kus Rahvusvahelise Valuutafondi esindaja Romain A. Duval tutvustas IMFi Euroopa osakonnas vastvalminud regionaalset majandusväljavaadet.
Pressikonverents Eesti Pangas, kus keskpanga president Madis Müller ja finantsstabiilsuse osakonna juhataja Jaak Tõrs tutvustavad ülevaadet, mis analüüsib suuremaid riske Eesti finantssektoris.
Pressikonverentsil saab teada:
kuidas majanduse jahenemine, kiire hinnakasv ja intresside tõus mõjutavad inimeste ja ettevõtete võimet laene tagasi maksta
milline mõju saab majanduse jahenemisel olema uute laenude andmisel ettevõtetele ja inimestele
kuidas mõjutavad võlakirjaturgudel toimuvad muutused Eesti pangandussektori rahastamist
milliseid samme tuleb keskpanga hinnangul astuda finantssektori tugevuse kindlustamiseks.
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
BYD SWOT Analysis and In-Depth Insights 2024.pptxmikemetalprod
Indepth analysis of the BYD 2024
BYD (Build Your Dreams) is a Chinese automaker and battery manufacturer that has snowballed over the past two decades to become a significant player in electric vehicles and global clean energy technology.
This SWOT analysis examines BYD's strengths, weaknesses, opportunities, and threats as it competes in the fast-changing automotive and energy storage industries.
Founded in 1995 and headquartered in Shenzhen, BYD started as a battery company before expanding into automobiles in the early 2000s.
Initially manufacturing gasoline-powered vehicles, BYD focused on plug-in hybrid and fully electric vehicles, leveraging its expertise in battery technology.
Today, BYD is the world’s largest electric vehicle manufacturer, delivering over 1.2 million electric cars globally. The company also produces electric buses, trucks, forklifts, and rail transit.
On the energy side, BYD is a major supplier of rechargeable batteries for cell phones, laptops, electric vehicles, and energy storage systems.
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
Introduction to Indian Financial System ()Avanish Goel
The financial system of a country is an important tool for economic development of the country, as it helps in creation of wealth by linking savings with investments.
It facilitates the flow of funds form the households (savers) to business firms (investors) to aid in wealth creation and development of both the parties
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
Empowering the Unbanked: The Vital Role of NBFCs in Promoting Financial Inclu...Vighnesh Shashtri
In India, financial inclusion remains a critical challenge, with a significant portion of the population still unbanked. Non-Banking Financial Companies (NBFCs) have emerged as key players in bridging this gap by providing financial services to those often overlooked by traditional banking institutions. This article delves into how NBFCs are fostering financial inclusion and empowering the unbanked.
How to get verified on Coinbase Account?_.docxBuy bitget
t's important to note that buying verified Coinbase accounts is not recommended and may violate Coinbase's terms of service. Instead of searching to "buy verified Coinbase accounts," follow the proper steps to verify your own account to ensure compliance and security.
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
@Pi_vendor_247
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
Credit Risk and Monetary Pass-through. Evidence from Chile
1. BANCO CENTRAL DE CHILE 12 October 2017
Credit Risk and Monetary Pass-through.
Evidence from Chile
Michael Pedersen
Central Bank of Chile
Eesti Pank
Tallinn, 12 October 2017
* The opinions expressed are those of author and do not represent those of the Central Bank of Chile or
its board members.
2. 2
Analysis of commercial interest rates of
business loans
Policy
rate
Commercial
rate
• Cost of
financing
(interbank
rate)
• Client risk
• Etc.
3. 3
Analysis of commercial interest rates of
business loans
Policy
rate
Commercial
rate
• Cost of
financing
(interbank
rate)
• Client risk
• Etc.
6. 6
About this study
Commercial interest rates are market rates and depend on several factors
such as the evaluation of the risk of the client.
This analysis proposes the use of higher order moments of the interest rate
distribution to quantify changes in the credit risk.
Fact: Different clients obtain loans in different months. In this context:
How can we measure changes in client risks across months?
When controlling for changes in these measures, how large is the pass-
through from changes in the monetary policy rate to the market rates?
9. 9
Inspired by the financial literature: Higher order
moments as measures of credit risk
Variance: Higher variance, higher uncertainty
of the client portfolio, higher credit risk
premium, higher interest rate. Expected effect
on the rate: +
Skewness: More negative skewness, the
distribution moves to the right, more higher-
risks clients, higher interest rate. Expected
effect on the rate: -
[High correlation with kurtosis]
Observable: Interest rate, which includes
credit risk premium.
10. 10
An illustrative example. ΔMPR = -0.50
Business lending rate. Histograms Dec-03 and Jan-04
Weighted moments of the distribution
MPR ̅ 2 3
Dec. 2003 2.25 5.68 11.60 4.71
Jan. 2004 1.75 6.85 19.97 1.77
11. 11
An illustrative example. ΔMPR = -0.50
Business lending rate. Histograms Dec-03 and Jan-04
Weighted moments of the distribution
MPR ̅ 2 3
Dec. 2003 2.25 5.68 11.60 4.71
Jan. 2004 1.75 6.85 19.97 1.77
12. 12
Related literature: MPR pass-through in Chile
Espinosa-Vega & Rebucci (2004, CBC book): Pass-through
in Chile is similar to those in other countries, but
incomplete in the long run.
Econometric model: Error-Correction ADL. Interest rates of
consumption and business loans, in pesos and CPI-indexed
(UF).
April 1993 – September 2002.
Becerra et al. (2010, Chilean Economy): The lack of pass-
through during the financial crisis can be explained by
higher national and international risk.
Econometric model: ADL. Nominal interest rates of
consumption and business loans.
2005-2009, weekly observations.
13. 13
Related literature: The risk-taking Channel
The risk-taking Channel: Low interest rates make
commercial banks take higher risk on loans.
Adrian & Liang (2014, Staff Report FEDNY): Overview of
studies on the risk-taking channel.
Jiménez et al. (2014, Econometrica): What do 23 millions
bank loans tell about the effect of the monetary policy on the
credit risk taken by commercial banks?
Commercial banks take higher credit risks when the MPR is
low.
A study of applications and loan contracts.
This study: Is there an easier way to measure credit risk?
14. 14
A simple framework to illustrate the context
in which the empirical study is conducted
Let r be the return on a 1 dollar loan.
To simplify, assume perfect competition, risk neutral banks, zero recuperation
rate and no arbitrage in prices. Let p be the default probability and rf the risk-free
interest rate. Then:
(1 + r)(1 – p) + 0p = 1 + E(r) = 1 + rf
1 + r = (1 + rf) / (1 – p)
r ≈ rf + p
Hence, with a one-to-one relationship between the MPR and the risk-free interest
rate, the pass-through is instantaneous and complete when adjusting by the credit
risk.
In line with Merton (1974).
15. 15
The study is on nominal rates of business loans
(60% of the total lending market)
Structures of the Chilean lending and deposit markets (%, 2013)
Com. Cons. Mort. Dep.
Nominal 78.8 99.1 0.0 74.7
Real 10.0 0.9 100.0 6.0
USD 11.1 0.1 0.0 19.2
Distribution between lending horizons of business loans (%, 2013)
< 30 days 4.4
30 - 89 days 5.0
90 days - 1 year 29.9
1 - 3 years 26.2
> 3 years 34.4
16. 16
The study is on nominal rates of business loans
(60% of the total lending market)
Structures of the Chilean lending and deposit markets (%, 2013)
Com. Cons. Mort. Dep.
Nominal 78.8 99.1 0.0 74.7
Real 10.0 0.9 100.0 6.0
USD 11.1 0.1 0.0 19.2
Distribution between lending horizons of business loans (%, 2013)
< 30 days 4.4
30 - 89 days 5.0
90 days - 1 year 29.9
1 - 3 years 26.2
> 3 years 34.4
17. 17
Distribution by type of loan
Distribution of business loans by maturity (%, 2013)
< 1M 1-3M 3-12M 1-3Y >3Y
(4.4) (5.0) (29.9) (26.2) (34.4)
Amortizing loan 68.1 53.1 40.5 38.2 59.8
Approved overdraft current account 9.4 4.8 55.3 60.2 32.1
Approved overdraft other accounts and credit cards 3.6 0.0 3.8 0.1 0.0
Non-approved overdraft current account 18.9 41.9 0.0 0.0 0.0
Credit card purchases paid in fees 0.0 0.1 0.3 0.1 0.1
Revolving credit card debt 0.0 0.1 0.0 1.4 8.0
18. 18
Distribution by type of loan
< 1M 1-3M 3-12M 1-3Y >3Y
(4.4) (5.0) (29.9) (26.2) (34.4)
Amortizing loan 68.1 53.1 40.5 38.2 59.8
Approved overdraft current account 9.4 4.8 55.3 60.2 32.1
Approved overdraft other accounts and credit cards 3.6 0.0 3.8 0.1 0.0
Non-approved overdraft current account 18.9 41.9 0.0 0.0 0.0
Credit card purchases paid in fees 0.0 0.1 0.3 0.1 0.1
Revolving credit card debt 0.0 0.1 0.0 1.4 8.0
Distribution of business loans by maturity (%, 2013)
19. 19
Data: Commercial Interest rates and risk
measures
Variable of interest: Monthly business interest rate: ijt (j = 0,1,2,3)
Period: Jan.02 – Feb.17 (t = 1,…,182)
Daily interest rates for each bank are utilized to calculate weighted moments for
intra policy meetings periods:
1
,
1
,
j: loan type (0: total, 1: 3-12M, 2: 1-3Y, 3: >3Y)
d: day of operation, d = 1,…,Djt
b: bank: b = 1,…,Bjt
ωj: Amount of the loan with interest rate ij
σkw(ijt): weighted k’th moment of the distribution with weighted mean ijt.
21. 21
Preliminary empirical analysis 1: Long-run
relations between commercial rate and interbank
market rate. Bivariate VAR models
As in Lim (Economic Record, 2001) and Gambacorta & Iannotti (Applied
Economics, 2007).
Step 1: Are interest rates I(1)? Mixed evidence from a battery of UR tests.
Step 2: Assuming that they are, do they cointegrate? Johansen’s Trace test
(merely indicative): Rates are I(1), but do not cointegrate.
i0t i1t
i2t i3t
0
5
10
15
20
25
30
2007 2009 2011 2013 2015 2017
0
5
10
15
20
25
30
2007 2009 2011 2013 2015 2017
0
5
10
15
20
25
30
2007 2009 2011 2013 2015 2017
0
5
10
15
20
25
30
2007 2009 2011 2013 2015 2017
Rolling Trace tests (vertical line: 5% critical level)
22. 22
Preliminary empirical analysis 2: Long-run
relations between interest rates and risk measures.
4-dimensional VAR models
Include risk measure in VAR models
Step 1: Are risk measures I(1)? Mixed evidence from a battery of UR tests.
Step 2: Assuming that they are, do they cointegrate with the interest rates?
Johansen’s Trace test (merely indicative): Variables are I(1), but do not
cointegrate.
Rolling Trace tests (vertical line: 5% critical level)
i0t i1t
i2t i3t
0
10
20
30
40
50
60
70
80
90
2007 2009 2011 2013 2015 2017
0
10
20
30
40
50
60
70
2007 2009 2011 2013 2015 2017
0
10
20
30
40
50
60
70
80
90
2007 2009 2011 2013 2015 2017
0
10
20
30
40
50
60
70
80
90
2007 2009 2011 2013 2015 2017
23. 23
No clear evidence… What to do??? Assume one CI
relation exists in each VAR. What are the
characteristics of the systems?
3 out of the 4 models: one-to-one LR relation between commercial and interbank
rates -> complete pass-through in the long run.
The last model (1-3Y): Less than complete LR pass-through.
Not evident that commercial rate adjust to LR relation, only in one model (1-
3Y).
Granger causality tests in the VECM model:
Interbank rate causes commercial rate (all 4 models)
Commercial rate does (almost always) not cause the interbank rate (only in
the 1-3Y model).
Risk measures do not cause any of the interest rates
The relations, if they exist, are contemporaneous
Interest rates do (almost always) not cause risk measures.
Apply an univariate framework
24. 24
Univariate model setup
Models:
Allow for asymmetric pass-through, and a role for monetary policy expectations:
1
1 if Δ 0
0 otherwise
, 2
1 if Δ 0
0 otherwise
,
1
1 if E Δ Δ 0
0 otherwise
, 2
1 if 0 E Δ Δ 0
0 otherwise
,
3
1 if 0 E Δ Δ 0
0 otherwise
, 4
1 if 0 E Δ Δ 0
0 otherwise
.
,
1
∆ ∆ ∆ , 0,1,2,3
25. 25
Univariate model setup (cont.)
Deterministic terms: constant, seasonal and outlier dummies.
Method: General-to-specific, i.e. based on inference.
Problems:
Auto correlated residuals:
Solution: Include MA-terms in the residuals
Relatively small sample (65 changes of the policy rate)
Solution: Standard errors estimated with jackknife replications.
Robustness estimations:
Business cycle, inflation rate, national and international general risk measures
(EMBI and VIX), and a measure of non-conventional monetary policy are not
important variables.
Credit risk and interest rate interaction terms are mostly not statistically
significant and do not affect the presented estimated coefficients.
33. 33
Conclusions and policy recommendations
The information in the weighted average of a commercial interest rate may be
limited. Higher order moments help with a more complete vision.
Changes in the higher order moments supply information about changes in the
risk associated with the portfolio of clients.
In a theoretical illustrations it can be shown that with a one-to-one relation
between the risk-free interest rate and the monetary policy rate (MPR), the pass-
through of MPR changes is instantaneous and complete when correcting for
changes in the credit risk.
Empirical estimations confirm this relation in Chile.
Policy recommendations:
To better understand changes in commercial interest rates, not only the
weighted averages of the rates should be monitored, but also the higher
order moments of the distribution. This is particularly important when
evaluating the effects of MPR changes.
For transparency: Publish these higher order moments.