Standard and Poor¡¦s (S & P), a global leading corporation in providing credit rating, published the sovereign rating outlook of Taiwan which was ¡§negative sign¡¨ at the end of 2007. The main reason was that the situation of public finance continued worsening. Based on traditional economic theory, the increased deficits or debts led to higher interest rates, and the increasing burden on enterprises for paying more loan cost, would have more adverse effects on the domestic investment activities. Therefore, this study is intended to explore the relationships among the long-term interest rates of public bonds, the outstanding debts, fiscal deficits, and government expenditure in Taiwan by analyzing 53 seasonal data from 1994:4 to 2007:4 as the samples. The findings indicate that no structure breaking points exist in every variable by using CUSUM test, and almost every variable is integrated of order one in unit root test. The results also reveal that there is no long-term relationship among the deficits, government expenditure, and interest rates using the cointegration analysis. There are probably two reasons for explanation: one is that people will increase saving automatically, and another is that the increased interest rates in the tax cut may be offset by the decreased interest rates in debts financing. Moreover, the outstanding debts and interest rates exist a significant negative relationship of long-term equivalence, and further variance decomposition shows that the effect of debts on interest rates is higher than the effect of interest rates on debts in the variable¡¦s explanatory ability. To explain the significant negative relationship, the possible main causes are liquidity factor, and the psychological anticipation of saving in public bond form directly or indirectly; the secondary cause is the fluctuation of interest rates affects the willingness of government financing.

<p>This paper uses co-integration method and error-correction model to re-examine the relationship between real exchange rate and expected interest rate differentials, including cumulated current account balance, over floating exchange rate periods. As indicated by the dynamic model, I find that there is a long run relationship among the variables using Johansen co-integration method. Final conclusion is that the empirical evidence is provided to show that our error-correction model leads to a good real exchange rate forecast.</p>

<p>In 2005, all groups listed on European stock exchanges are required to prepare their consolidated financial statements according to International Financial Reporting Standards (IFRS). IFRS are different from local regulations across Europe in many aspects, and observers expect the transition process thorny and resource-draining for the companies that undertake it.</p><p>The study explores transition difficulties by Swedish bank groups on the way of implementing IAS 39, Financial Instruments: Recognition and Measurement. Deemed the most controversial and challenging standard for adoption by the financial sector, it indeed poses new demandson classification, recognition and measurment of financial instruments, and sets out new hedge accounting rules, previously unseen in Swedish practice. Additionaly, the structure of bank's balance sheets makes IAS 39 also the central one among all other standards in terms of numbers of balance sheet items it impacts.</p><p>The study uses qualitative method to explore whether transition to IAS 39 is likely to improve transparency in reporting derivatives. Focus is on use of interest rate swaps as hedging instruments in mitigation of interest rate risk.</p><p>It is concluded that differences between two reporting frameworks have been well understood by the banks early in the implementation process. A negative feature of the standard is increased volatility in earnings as a result of more wide-spread reliance on fair value measurement method. This accounting volatility impedes comparability of performance results, as well as conceals true efficiency of economic hedge relationships. To some degree, the volatility can be minimized by the application of hedge accounting. However, a bank must methodically follow a set of rigourous if hegde accounting is to be adopted. Fair value is a more straightforward alternative to hedge accounting , but it brings in additional concerns, and has not yet been endorsed in the EU.</p><p>It is additionally argued that recognition of all derivatives on BS and measurement at fair value are two important features of IAS 39 that indeed increases reporting transparency by minimizing risk of undisclosed hidden losses.</p>

<p>The focus of this empirical paper is to outline and evaluate certain determinants of lever-aged buyouts (LBOs) in Europe. The paper begins by providing a detailed description of LBOs, with particular emphasis on the European markets. This allows for the development of the four determinants that are studied in greater detail, specifically interest rate, out-standing stock, anti-director rights, and creditor rights. The conclusions indicate that coun-tries with more outstanding stock have larger LBO markets since equity is more liquid in these countries. Further, the results suggest that long-run interest rate is negatively related to the size of the LBO market. The paper goes on to test whether anti-director rights and creditor rights, as developed by La Porta et al. (1998) are related to the size of the LBO markets, but no evidence is found to support this notion. It is thus concluded that deter-minants focused on financing the buyouts play the most significant role in European LBO transactions.</p>

No description available.

<p>Trying to find explanations to movements in the exchange rate is something that econo-mists have been dealing with to a great extend lately. Especially since the break down of the Bretton Wood system in the early 1970’s, when many countries introduced a floating sys-tem instead. One of the most famous and often tested models is Jeffery A. Frankel’s Real Interest Differential (RID) model from 1979.</p><p>This paper investigates which of the variables included in the model are affecting move-ments in the exchange rate for Sweden, the UK and Japan against the US dollar between January 1995 and December 2004. The variables in question are money supply, industrial production, interest rate and inflation differential. The model has purchasing power parity and uncovered interest parity as underlying theoretical assumptions, two main building blocks of open macro economics, and when combined, they can offer a relationship be-tween changes in the exchange rate and the interest rate differential.</p><p>The results show that the variable interest rate differential constitutes a significant explana-tory variable for exchange rate movements regarding all three countries included in the model. Both Sweden and the UK have also, in accordance with the RID model, the ex-pected negative sign on the coefficient. The results regarding the other variables are mixed between the countries, but it can in general be said that the model seems to be able to ex-plain movements in the exchange rate to a certain degree.</p>

<p>This thesis aims at contributing to the growing number of studies on banking productivity, by attempting to introduce the interest rate spread as one of the driving forces behind productivity changes and alterations of the intermediary role of banks. The analysis is based on observations form the banking sectors of Germany and Sweden. As there is no clear concensus on the proper way of measuring banking output, and the choice of method varies considerably form study to study, this paper adopts the intermediation approach which is one of the three most offen recurring methods applied in research papers. The results include some interesting revelations such as the low significance of a change in labour and capital to the growth in banking output (challenging traditional theory), and that Swedish banks on average were moving away from the traditional intermediary role between 1979 and 1996 while German banks kept lending business at their centre of attention.</p>

This thesis consists of three papers in the area of interest rate derivatives modelling. The pricing and hedging of (exotic) interest rate derivatives is one of the most demanding and complex problems in option pricing theory and is of great practical importance in the market. Models used in production at various banks can broadly be divided in three groups: 1- or 2-factor instantaneous short/forward rate models (such as Hull &amp; White (1990) or Cheyette (1996)), LIBOR/swap market models (introduced by Brace, Gatarek &amp; Musiela (1997), Miltersen, Sandmann &amp; Sondermannn (1997) and Jamshidian (1997)) and the one or two-dimensional Markov-functional models of Hunt, Kennedy &amp; Pelsser (2000)). In brief and general terms the main characters of the above mentioned three modelling frameworks can be summarised as follows. Short/forward rate models are by nature computationally efficient (implementations may be done using PDE or lattice methods) but less flexible in terms of fitting of implied volatility smiles and correlations between various rates. Calibration is hence typically performed in a ‘local’ (product by product based) sense. LIBOR market models on the other hand may be calibrated in a ‘global’ sense (i.e. fitting close to everything implying that one calibration may in principle be used for all products) but are of high dimension and an accurate implementation has to be done using the Monte Carlo method. Finally, Markov-functional models can be viewed as designed to combine the computational efficiency of short/forward rate models with flexible calibration properties. The defining property of a Markov-functional model is that each rate and discount factor at all times can be written as functionals of some (preferably computationally simple) Markovian driving process. While this is a property of most commonly used interest rate models Hunt et al. (2000) introduced a technique to numerically determine a set of functional forms consistent with market prices of vanilla options across strikes and expiries. The term a ‘Markov-functional model’ is typically referring to this type of model as opposed to the more general meaning, a terminology that is adopted also in this thesis. Although Markov-functional models are indeed a popular choice in practice there are a few outstanding points on the practitioners’ wish list. From a conceptual point of view there is still work to be done in order to fully understand the implications of various modelling choices and how to efficiently calibrate and use the model. Part of the reason for this is that while the properties of the short/forward rate and the LIBOR market models may be understood from their defining SDEs this is less clear for a Markov-functional model. To aid the understanding of the Markov-functional model Bennett &amp; Kennedy (2005) compares one-dimensional LIBOR and swap Markov-functional models with the one-factor separable LIBOR and swap market models and concludes that the models are similar distributionally across a wide range of viable market conditions. Although this provides good intuition there is still more work to be done in order to fully understand the implications of various modelling choices, in particular in a two or higher dimensional setting. The first two papers in this thesis treat extensions of the standard Markov-functional model to be able to use a higher dimensional driving process. This allows a more general understanding of the Markov-functional modelling framework and enables comparisons with multi-factor LIBOR market models. From a practical point of view it provides more powerful modelling of correlations among rates and hence a better examination and control of some types of exotic products. Another desire among practitioners is to develop an efficient way of using a process of stochastic volatility type as a driver in a Markov-functional model. A stochastic volatility Markov-functional model has the virtue of both being able to fit current market prices across strikes and to provide better control over the future evolution of rates and volatilities, something which is important both for pricing of certain products and for risk management. Although there are some technical challenges to be solved in order to develop an efficient stochastic volatility Markov-functional model there are also many (more practical) considerations to take into account when choosing which type of driver to use. To shed light on this the third paper in the thesis performs a data driven study in order to motivate and develop a suitable two-dimensional stochastic volatility process for the level of interest rates. While the main part of the paper is general and not directly linked to any complete interest rate model for exotic derivatives, particular care is taken to examine and equip the process with properties that will aid use as a driver for a stochastic volatility Markov-functional model. / <p>Diss. Stockholm :  Stockholm School of Economics, 2011. Introduction together with 3 papers</p>

Random field models have provided a flexible environment in which the properties of the term structure of interest rates are captured almost as observed. In this study we provide an overview of the forward rate random fiield models and propose an extension in which the forward rates fluctuate along with a two parameter process represented by a random field. We then provide a mathematical expression of the yield curve under this model and sketch the prospective utilities and applications of this model for interest rate management.

This dissertation contains a series of essays that provide empirical evidence for Australia on some fundamental predictions of real business cycle models and on the convergence and persistence of real interest rates. Chapter 1 provides a brief introduction to the issues examined in each chapter and provides an overview of the methodologies that are used. Tests of various basic predictions of standard real business cycle models for Australia are presented in Chapters 2, 3 and 4. Chapter 2 considers the question of great ratios for Australia. These are ratios of macroeconomic variables that are predicted by standard models to be stationary in the steady state. Using time series econometric techniques (unit root tests and cointegration tests) Australia great ratios are examined. In Chapter 3 a more restrictive implication of real business cycle models than the existence of great ratios is considered. Following the methodology proposed by Canova, Finn and Pagan (1994) the equilibrium decision rules for some standard real business cycle are tested on Australian data. The final essay on this topic is presented in Chapter 4. In this chapter a large-country, small-country is used to try and understand the reason for the sharp rise in Australia??s share of world output that began around 1990. Chapter 5 discusses real interest rate linkages in the Pacific Basin region. Vector autoregressive models and bootstrap methods are adopted to study financial linkages between East Asian markets, Japan and US. Given the apparent non-stationarity of real interest rates a related issue is examined in Chapter 6, viz. the persistence of international real interest rates and estimation of their half-life. Half-life is selected as a means of measuring persistence of real rates. Bootstrap methods are employed to overcome small sample issues in the estimation and a non-standard statistical inference methodology (Highest Density Regions) is adopted. Chapter 7 reapplies the High Density Regions methodology and bootstrap half-life estimation to the data used in Chapters 2 and 5. This provides a robustness check on the results of standard unit root tests that were applied to the data in those chapters. Main findings of the thesis are as follows. The long run implications of real business cycle models are largely rejected by the Australia data. This finding holds for both the existence of great ratios and when the explicit decision rules are employed. When the small open economy features of the Australian economy are incorporated in a two country RBC model, a country-specific productivity boom seems to provide a possible explanation for the rise in Australia??s share of world output. The essays that examine real interest rates suggest the following results. Following the East Asian financial crisis in 1997-98 there appears to have been a decline in the importance of Japan in influencing developments in the Pacific Basin region. In addition there is evidence that following the crisis Korea??s financial market became less insular and more integrated with the US. Finally results obtained from the half-life estimators suggest that despite the usual findings from unit root tests, real interest rates may in fact exhibit mean-reversion.