Interest Rate Volatility and Business Cycle Expectations

Martínez-Serna, María-Isabel; Navarro, Eliseo

doi:10.1111/1468-2362.12061

Cited by 5 publications

(2 citation statements)

References 32 publications

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“…In turn, Montes and Almeida (2017) show that corruption adversely affects business confidence. The findings of Martínez-Serna and Navarro (2015) suggest increased interest rate volatility deteriorates the expectations of economic agents.…”

Section: Business Confidence Uncertainties and Investmentsmentioning

confidence: 99%

Effects of economic policy uncertainty and political uncertainty on business confidence and investment

Montes

Nogueira

2021

JES

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PurposeThis study estimates the effects of political uncertainty and economic policy uncertainty on business confidence. Moreover, it also examines business confidence as a transmission channel of political uncertainty and economic policy uncertainty to investment.Design/methodology/approachThe study addresses the Brazilian case from May 2004 to December 2017. Brazil experienced situations of political instability and public distrust in government and its policies, which reflected on the economic environment. The study uses two business confidence indicators that capture entrepreneurs' sentiment in relation to their business and the economy. All models are estimated using ordinary least squares and generalized method of moments.FindingsThe estimates reveal that increases in both political uncertainty and economic policy uncertainty reduce business confidence. The findings also indicate that business confidence acts as a transmission mechanism, i.e. uncertainties affect investments through business confidence.Practical implicationsThe findings point to the following practical implications related to the existence of uncertainties in the Brazilian economy: different institutional difficulties and government indecisions have blurred the political scene and caused political uncertainties. In addition, the same aspects that blurred the political scene also caused uncertainties in relation to economic policy that undermined business confidence, and affected investment.Originality/valueThere is a vast literature on business confidence, as well as studies addressing the relationship between business confidence and investment. This study differs from other studies as follows: in addition to the political uncertainty, it also analyzes the effect of economic policy uncertainty on business confidence; it uses different measures to capture political instability, and it analyzes whether business confidence acts as a transmission channel of both uncertainties to investments.

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Section: Business Confidence Uncertainties and Investmentsmentioning

confidence: 99%

Effects of economic policy uncertainty and political uncertainty on business confidence and investment

Montes

Nogueira

2021

JES

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“…Since private investment and production decisions are influenced by business confidence [1], studies seek to identify and analyze the determinants of business confidence (e.g. Konstantinou and Tagkalakis, 2011; Montes and Bastos, 2013; Khumalo, 2014; Martinez-Serna and Navarro, 2015; Montes and Nogueira, 2022). The literature indicates that business confidence is affected by macroeconomic variables (such as output, inflation and interest rates), and it suggests that economic policies that seek to maintain a stable macroeconomic environment improve business confidence (Montes and Bastos, 2014; Ilut and Saijo, 2021).…”

Section: Introductionmentioning

confidence: 99%

Do monetary policy credibility and disagreements in inflation and interest rate expectations affect business confidence? Evidence from an inflation targeting developing country

Montes,

Díaz

2023

JMB

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PurposeBusiness confidence is crucial to firm decisions, but it is deeply related to professional forecasters' expectations. Since Brazil is an important inflation targeting country, this paper investigates whether monetary policy credibility and disagreements in inflation and interest rate expectations relate to business confidence in Brazil. The study considers the aggregate business confidence index and the business confidence indexes for 11 industrial sectors in Brazil.Design/methodology/approachThe authors run ordinary least squares and generalized method of moments regressions to assess the direct effects of disagreements in expectation and monetary policy credibility on business confidence. The authors also make use of Wald test of parameter equality to observe whether there are “offsetting effects” of monetary credibility in mitigating the effects of both disagreements in expectations on business confidence. Besides, the authors run quantile regressions to analyze the effect of the main explanatory variables of interest on business confidence in contexts where business confidence is low (pessimistic) or high (optimistic).FindingsDisagreements in inflation expectations reduce business confidence, monetary policy credibility improves business confidence and credibility mitigates the adverse effects of disagreements in expectations on business confidence. The sectors most sensitive to monetary policy credibility are Rubber, Motor Vehicles, Metallurgy, Metal Products and Cellulose. The findings also suggest the effect of disagreement in inflation expectations on business confidence decreases as confidence increases, and the effect of monetary policy credibility on business confidence increases as entrepreneurs are more optimistic.Originality/valueWhile there is evidence that monetary policy credibility is beneficial to the economy, there are no studies on the effects of disagreements in inflation and interest rate expectations on business confidence (at the aggregate and sectoral levels). Besides, there are no studies that have investigated whether monetary policy credibility can mitigate the effects of disagreements in inflation and interest rate expectations on business confidence (at the aggregate and sectoral levels). Therefore, there are gaps to be filled in the literature addressing business confidence, monetary policy credibility and disagreements in expectations. These issues are particularly important to inflation targeting developing countries.

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Effects of crime and violence on business confidence: evidence from Rio de Janeiro

Almeida

Montes

2020

JES

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PurposeDue to the fact that crime and violence affect the economy and the business environment, and since the economic environment affects entrepreneurs' expectations and therefore their decisions, this study analyzes the effect of both violence and crime on the confidence of entrepreneurs from the state of Rio de Janeiro.Design/methodology/approachMaking use of time series methodology, the authors provide OLS and GMM estimates for the effects of violence and crime on the business confidence index of entrepreneurs in Rio de Janeiro. The analysis of the Rio de Janeiro case is relevant since Rio de Janeiro is the second state, after São Paulo, with the largest participation in the Brazilian GDP, and crime and violence have very high indicators in this state. The analysis comprises the period between January 2012 and July 2018 (monthly data).FindingsThe results suggest that violence and crime negatively impact business confidence in Rio de Janeiro. The estimates reveal that, among all economic and noneconomic variables, the third variable with the greatest impact on business confidence is “cargo thefts.” An increase of one standard deviation in this variable reduces business confidence by approximately 2.48 basis points, while increases of one standard deviation in “violent deaths,” “commerce thefts” and “extortion” reduce business confidence by approximately 1.24, 1.46 and 1.47 bp, respectively. The impacts caused by these violence and crime variables are greater than the effect caused by an increase of one standard deviation in the real interest rate.Practical implicationsThe findings reveal that a stable economic environment with economic growth is as important to business confidence as the adoption of policies aimed at increasing public security through the fight against crime and violence.Originality/valueIf on the one hand the literature provides evidence that crime is harmful to the economy, on the other hand no study has so far analyzed the impact of crime and violence on business confidence. This type of analysis is relevant since confidence is an important aspect in the expectation formation process and thus to production and investment decisions and economic activity. Thus, this study is the first to analyze the effects of crime and violence on business confidence and consequently, the first to explore the consequences of crime on the economy through the expectations channel.

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Interest Rate Volatility and Business Cycle Expectations

Cited by 5 publications

References 32 publications

Effects of economic policy uncertainty and political uncertainty on business confidence and investment

Effects of economic policy uncertainty and political uncertainty on business confidence and investment

Do monetary policy credibility and disagreements in inflation and interest rate expectations affect business confidence? Evidence from an inflation targeting developing country

Effects of crime and violence on business confidence: evidence from Rio de Janeiro

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