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Vol.2 No.3
December 2014

 Page Number

 Article Information


The Optimal Interest Rates and the Current Interest Rate System

Ioannis N. Kallianiotis

DOI: 10.15604/ejef.2014.02.03.001


The paper discusses the current target interest rate, which is closed to zero with the new experiment of quantitative easing since 2009 and has reduced the rate of return and the income and has made the real savings rate negative. This target rate has not reduced unemployment and has not improved growth (it is not optimal), but has increased the debt of individuals and the low taxes on businesses have magnified the budget deficits and the national debt. People were borrowing the present value of their uncertain future wealth and their high debt and low income raise the risk and this high risk premium heighten the interest rate on loans, especially on credit cards. The current monetary system needs to be changed and an interest rate floor on deposits (savings) and an interest rate ceiling on individuals’ loans (borrowings) is necessary to improve social welfare, fairness, and justice in our society and not to support only disintermediation (financial markets). The middle class cannot work only to pay taxes and interest on its debt (redistribution of their wealth to government and banks) or worse to be in chronic unemployment. Many home owners defaulted on their loans payments and their homes are foreclosed. They will end up without property (real assets). The unconcern towards the middle class will affect negatively the entire socio-economic structure of the nation and after losing its productive power, it will start declining, as history has shown to us with so many empires that do not exist anymore. We hope the leaders (the democratic governments) to improve public policies, to regulate the financial market and institutions, and to satisfy their policy ultimate objective, which is citizens’ perfection and the nation’s highest point of prosperity.  

Keywords: Estimation, Time-Series Models, Forecasting and Other Model Applications, Consumption; Saving, Taxation, Government Expenditures, Interest Rates


Monetary Policy Rules in Some Transition Economies

Mohamed El-Hodiri and Bulat Mukhamediyev

DOI: 10.15604/ejef.2014.02.03.002


In this paper we examine the question of whither monetary rules or ad hoc monetary policies were followed during the early stages of transition and in response to the global financial crisis. We study Eastern European countries and thee CIS countries. We find that during the early of transition, both developed economies and economies in transition used the monetary base, as well as the interest rate, as the main tools for monetary policy. However, in response to the global crises, priority was given to the main objective such as containing inflation and supporting economic growth.  Monetary authorities had the additional possible choice of alternative objectives, such as stabilization of nominal exchange rate and real effective exchange rate, or increase in reserves. It was found that countries mostly retained priorities of monetary policy and some of them gave a greater importance to the alternative objectives.

Keywords: Monetary Policy Rule, Interest Rate, Exchange Rate, Expectation, Econometric Model, Instrument, Transition Economies


Eurozone’s Future: Convergence, Restructuring or “Muddling Through”?

Antonin Rusek

DOI: 10.15604/ejef.2014.02.03.003


The mixture of the recent EU policies – mainly the “fiscal compact” and the OMT approach by the ECB – restored the nominal stability for the Eurozone and therefore preserved the common currency. However, the same steps resulted in a widening gap between the Northern tier and the Mediterranean countries – the real divergence. To address this issue – which is potentially a mortal threat to the Eurozone in its present configuration – the three policy options are available: A restoration of a real convergence, the Eurozone’s restructuring or a “muddling through”. The first two require radical policy steps which in the present political and economic climate are very unlikely. That leaves “muddling through” as the likeliest future approach. However, its inherent ad hoc nature breeds uncertainty, which, combined with a complacency stemming from the recent “successes” increases the possibility of a destructive future dynamics. 

Keywords: EU North – South Divergence, Nominal Convergence vs. Real divergence


A Study on Internal Labor Movement and Policy Multiplier in Thailand

Autsawin Suttiwichienchot and Nattapong Puttanapong

DOI: 10.15604/ejef.2014.02.03.004


The main objective of this paper is trying to measure the effectiveness of selected supply side and demand side policies on Thai economy by using Computable General Equilibrium (CGE) model. We found that there is a special characteristic of the unskilled labor movement among agricultural sector and other sectors in Thailand and this characteristic can represented by Harris-Todaro expected wage equation. Therefore, we developed the CGE model incorporating Harris-Todaro expected wage equilibrium for the labor market. The simulation result shows that, for selected supply side policy, the reduction of switching cost, increasing labor productivity (which are selected supply side policy), increasing in government spending and export promotion (which are selected demand side policy) can contribute positive impacts to Thai economy. Interestingly, we found that if both the reduction of switching cost and the increasing labor productivity are implemented together, they will generate even more positive impacts to Thai economy than separately implemented. This finding suggests policy maker should implement both the reduction of switching cost and the increasing labor productivity together in order to gain more benefit to Thai economy. These two policies are supply side policy and related to labor market, thus improving labor market is a great choice for Thailand. Lastly, we found that all policies have the similar non-linear characteristic.

Keywords: Supply-Side and Demand-Side Policies, Computable General Equilibrium, Harris-Todaro Equation, Non-Linear Characteristic


Determinants of Non-Performing Assets in India – Panel Regression

Saikat Ghosh Roy

DOI: 10.15604/ejef.2014.02.03.005


It is well known that level of banks’ credit plays an important role in economic developments. Indian banking sector has played a seminal role in supporting economic growth in India. Recently, Indian banks are experiencing consistent increase in non-performing assets (NPA). In this perspective, this paper investigates the trends in NPA in Indian banks and its determinants. The panel regressions, fixed effect allows evaluating the impact of selected macroeconomic variables on the NPA. The Panel regression result indicates that the GDP growth, change in exchange rate and global volatility have major effects on the NPA level of Indian banking sector.

Keywords: Non-performing loans, Macro-financial linkages, Bank Credit, Panel Regression Model


Development of Ad Valorem Real Property Taxation System in Moldova

Olga Buzu

DOI: 10.15604/ejef.2014.02.03.006


The author analyzes key aspects of the new ad valorem property taxation (AVT) system which is currently implemented in the Republic of Moldova and outlines ways of its further potential development. The author uses both systemic and synergistic approaches to develop a methodology for the assessment of the AVT system efficiency based on the multipurpose cadastre data. The study identifies key characteristics of the AVT system, as well as main problems associated with the implementation of the new property taxation system and with the compatibility of the fiscal and the real property cadastre data, and makes suggestions for further development of the AVT system in the country. The study allows to identify and maximize the benefits of the AVT system.

Keywords: Real Property Valuation, Ad Valorem Property Taxation, Assessed Value, Cadastre Value, Multi-Purpose Cadastre

Eurasian Publications
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Erenoglu Is Merkezi
Fatih – Istanbul, TURKEY
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