The time-series properties of Norwegian inflation and nominal interest rate

Österholm, Pär

doi:10.1080/00036840701537828

Cited by 4 publications

(3 citation statements)

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“…Their evidence supports the early findings that expected inflation is related to changes in the nominal interest rate. In Norway, Osterholm (2009) used annual data of Norwegian nominal interest rate (yield of long-term government bond) and inflation over the period of 1850-2004 and found no cointegration between these two variables.…”

Section: Literature Reviewmentioning

confidence: 99%

The relationships between time deposit rates, real rates, inflation and risk premium

Lee

Isa

Auzairy

2020

JIABR

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Purpose The purpose of this paper is to investigate the influence of the real interest rates, inflation and risk premium on the time deposit rates of banks in the dual banking system in Malaysia. Design/methodology/approach The data consists of 1-, 6- and 12-month average time deposit rates of conventional and Islamic banks over the period of January 2000 to June 2017. The cointegration methodologies are used to explore links between the time deposit rates, real rates, inflation and risk premium. The causality tests to test causality linkages between pairs of variables are also applied. The generalised forecast error variance decomposition based on the error correction model is conducted to analyse the impact of variables variation on the deposit rates. Findings The results show the presence of two cointegration vectors in the deposit rates, real rates, inflation and risk premium, for both conventional and Islamic bank rates. Causality tests reveal that deposit rates are caused by inflation and risk premium in a one-way causality. The results of variance decomposition highlight the importance of inflation and risk premium in explaining the variations in the bank deposit rates. For the conventional bank, inflation shocks play the most important role in explaining the movements of the deposit rates. In Islamic banks, the major determinant’s largest influence is the risk premium. Between the two bank rates, Islamic bank rates receive more influence from the explanatory variables in the long-run compared to conventional bank rates. The real rates have no noticeable effect on the variance of time deposit rates for both banks. Originality/value This study presents new evidence on the relationship between time deposit rates and the three explanatory variables, which are the real interest rates, inflation and risk premium, for both conventional and Islamic banks in Malaysia. The dual banking system allows exploring the similarities and differences between conventional and Islamic banks in Malaysia in terms of the linkages between the variables.

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Section: Literature Reviewmentioning

confidence: 99%

The relationships between time deposit rates, real rates, inflation and risk premium

Lee

Isa

Auzairy

2020

JIABR

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“…On the contrary there are a number of studies that find contradictory results. These include Al-Khazali (1999), Paleologos and Georgantelis (1999), Osterholm (2009) and Ahmad (2010). Al-Khazali (1999) finds that inflation and nominal interest rates are not cointegrated in nine Pacific-Basin countries over the period of 1980–1994.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Paleologos and Georgantelis (1999) find no validity of the Fisher effect for the Greek market, and there is no long-run relation between the nominal interest rate and inflation. Osterholm (2009) use annual data of Norwegian inflation and nominal interest rate (yield of long-term government bond) over the period of 1850–2004. They report that there is no cointegration between these two variables.…”

Section: Literature Reviewmentioning

confidence: 99%

Conventional and Islamic banks deposit rates as inflation hedges: the case of Malaysia

Lee

Isa

2019

JEAS

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Purpose The purpose of this paper is to examine the extent to which conventional and Islamic bank fixed deposit rates can protect depositors against inflation in the Malaysia context. Design/methodology/approach Nominal interest rates are represented by commercial bank fixed deposit and investment bank fixed deposit rates. The authors use monthly data over the period 2000–2016. The authors apply the autoregressive distributed lag bounds testing methodology to test the existence of long-run relationship between nominal rates and inflation, and the error-correction model to test for the short-run dynamics. Findings The results show that the nominal interest rate and inflation are cointegrated for all the data series. The evidence indicates that all the fixed deposit rates, for both conventional and Islamic banks are effective inflation hedges in the long-run thereby supporting the Fisher hypothesis. There is no difference in the inflation hedging ability between conventional bank rates and Islamic bank rates. However, the authors find no evidence of the short-run relationship between interest rates and inflation for either bank. Practical implications Bank regulators should be concerned on the similarities in behaviour towards inflation between conventional and Islamic rates, given that the deposit rates for both banks are supposedly set based on different premises. Bank customers, they should deposit their money for the long horizon in order to protect themselves against inflation. Depositors worrying about inflation should be indifferent between conventional or Islamic as both banks provide similar inflation hedging characteristics. Originality/value The novelty of this study is in using the bank fixed deposit rates to study the Fisher effect in an emerging market and in comparing the conventional and Islamic bank rates in terms of their inflation hedging ability.

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