Openness and interest rates: An analysis using the MIUF model and transaction cost model of money

Takamatsu, Satoko

doi:10.1016/j.iref.2009.05.003

Cited by 1 publication

(1 citation statement)

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“…For both of these models, the long-term impact of trade openness is significant at the 5 per cent level and is fairly strong, while the short-term impact is rather weak as it is significant only at the 10 per cent level. The positive impact of openness on the interest rate found here supports the theoretical contribution of Takamatsu (2010).…”

Section: Impact Of Trade Opennesssupporting

confidence: 87%

Deficits, Debt and Interest Rates in Sri Lanka: Does the Spillover of Foreign Interest Rates Matter?

Mondal

Maitra²

2022

Margin: The Journal of Applied Economic Research

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Fiscal policy’s impact on the interest rate has a controversial background. To reconcile theoretical uncertainties, researchers and policymakers often relied on empirical exploration. This article appraises the impact of external debt, domestic debt, the budget deficit, and foreign interest rates on interest rate variations in Sri Lanka, for the period when interest rates were deregulated. It applies the bounds testing procedure to the cointegration and error correction models within an autoregressive distributive lag framework. A set of relevant variables like the exchange rate, trade openness and money supply is controlled to corroborate whether such impacts are robust. It is found that the budget deficit elevates interest rates both in the long and short runs; external debt raises interest rates only in the long run; and domestic debt lowers interest rates both in the long and short runs. The spillover of foreign interest rates has a positive impact on Sri Lanka’s interest rate. As interest rates respond to domestic fiscal policy, they can induce fiscal discipline by affecting the cost of borrowing. On the other hand, the significant impact of foreign interest rates on Sri Lanka’s interest rate is a critical issue, as domestic macroeconomic policy has to face challenges to achieve its goal. JEL Classification: E62, E43, E52, H60

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Section: Impact Of Trade Opennesssupporting

confidence: 87%