scholarly journals What is the Real Story for Interest Rate Volatility?

2000 ◽  
Vol 1 (1) ◽  
pp. 43-67 ◽  
Author(s):  
Andreas Hornstein ◽  
Harald Uhlig
Keyword(s):  
Interest Rate ◽  
Business Cycle ◽  
Interest Rates ◽  
Adjustment Costs ◽  
Real Business Cycle ◽  
Real Interest Rates ◽  
The Real ◽  
Time To Build ◽  
Interest Rate Volatility ◽  
Business Cycle Model

Abstract What is the source of interest rate volatility? Why do low interest rates precede business cycle booms? Most observers tend to assume that monetary policy is largely responsible for it. Indeed, a standard real business cycle model delivers rather small fluctuations in real interest rates. Here, however, we present two models of the real business cycle variety, in which the fluctuations of real rates are of similar magnitude as in the data, while simultaneously matching salient business cycle facts. The second model also replicates the cyclical behavior of real interest rates.The models build on recent work by Danthine and Donaldson, Jermann, and Boldrin, Christiano and Fisher. We assume that there are workers and capital owners. The first model posits habit formation and adjustment costs to the stock of capital. The second model assumes that it takes time to plan investment and time to build capital.

scholarly journals Risk Matters: The Real Effects of Volatility Shocks

2011 ◽  
Vol 101 (6) ◽  
pp. 2530-2561 ◽  
Author(s):  
Jesús Fernández-Villaverde ◽  
Pablo Guerrón-Quintana ◽  
Juan F Rubio-Ramírez ◽  
Martin Uribe
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Open Economy ◽  
Emerging Economies ◽  
Real Interest Rate ◽  
Small Open Economy ◽  
Real Interest Rates ◽  
The Real ◽  
Interest Rate Volatility ◽  
Business Cycle Model

We show how changes in the volatility of the real interest rate at which small open emerging economies borrow have an important effect on variables like output, consumption, investment, and hours. We start by documenting the strong evidence of time-varying volatility in the real interest rates faced by four emerging economies: Argentina, Brazil, Ecuador, and Venezuela. We estimate a stochastic volatility process for real interest rates. Then, we feed this process in a standard small open economy business cycle model. We find that an increase in real interest rate volatility triggers a fall in output, consumption, investment, hours, and debt. (JEL E13, E20, E32, E43, F32, F43, 011)

scholarly journals POPULATION AGING AND THE REAL INTEREST RATE IN THE LAST AND NEXT 50 YEARS: A TALE TOLD BY AN OVERLAPPING GENERATIONS MODEL

2019 ◽  
Vol 24 (8) ◽  
pp. 2060-2103 ◽  
Author(s):  
Nao Sudo ◽  
Yasutaka Takizuka
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Real Interest Rate ◽  
Overlapping Generations ◽  
Population Aging ◽  
Developed Countries ◽  
Demographic Changes ◽  
Real Interest Rates ◽  
Overlapping Generations Model ◽  
The Real

Population aging, along with a secular decline in real interest rates, is an empirical regularity observed in developed countries over the last few decades. Under the premise that population aging will deepen in coming years, some studies predict that real interest rates will continue to be depressed further to a level below zero. In this paper, we address this issue and explore how changes in demographic structures have affected and will affect real interest rates, using an overlapping generations model calibrated to Japan’s economy. We find that the demographic changes over the last 50 years reduced the real interest rate. About 270 out of the 640 basis points decline in real interest rates during this period was due to declining labor inputs and higher saving, which themselves stemmed from the lower fertility rate and increased life expectancy. As for the next 50 years, we find that demographic changes alone will not substantially increase or decrease the real interest rate from the current level. These changes reflect the fact that the size of demographic changes in years ahead will be minimal, but that downward pressure arising from the past demographic changes will continue to bite. As Japan is not unique in terms of this broad picture of changes in demographic landscapes in the last and next 50 years, our results suggest that, sooner or later, a demography-induced decline in real interest rates may be contained in other developed countries as well.

scholarly journals The Effects of Exchange Rate Volatility, Reserve Volatility and Real Interest Rates on Trade: Applications on Transition Economies

2013 ◽  
Author(s):  
Cevat Gerni ◽  
Selahattin Sarı ◽  
Dilek Özdemir ◽  
Ömer Selçuk Emsen
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Foreign Trade ◽  
Interest Rates ◽  
Transition Economies ◽  
Trade Balance ◽  
Real Interest Rate ◽  
Exchange Rate Volatility ◽  
Real Interest Rates ◽  
The Real

On the basis of volatility or sharp fluctuations in macroeconomic variables, especially in the 1970s, it can be said to play a role in deepening the financial capital deepening. Deepening on volatility forms the basis of not only domestic and but also international economic deviations. With the collapse of the Eastern Bloc, a lot of countries have attempted to liberalize. This situation has caused volatility on mainly rate of exchange then many macroeconomics variables. In this aspect, the multi-relationship between volatility in foreign trade balance and the real interest rate, exchange rate and reserves’ volatility are investigated empirically with the appropriate set of data on 11 transition economies for the period 1996-2011. In this study, the effects of the volatility of foreign trade (netxvol) on the exchange rate volatility (kurvol), reserve volatility (rezvol), and real interest rates subjected with using panel data analysis. Moreover to regression analysis, centred on Granger Causality Test the volatility of the foreign trade balance, import and export volatility, exchange rate volatility, volatility of reserves and try to determine the causal relationship between the real interest rate. The findings have light on that the volatility of trade balance was mostly affected to the volatility of the reserve. It may well be said that the volatility of the interest rate and the exchange rate at the independence of the trade predispose to speculative movements.

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