The Effect of an Increase in an Interest Rate Risk Premium on Business Cycles in a Small Open Economy Facing Social Turmoil and Its Mitigation

2019 Fiscal Year Final Research Report

• Project/Area Number: 16K03683
• Research Category: Grant-in-Aid for Scientific Research (C)
• Allocation Type: Multi-year Fund
• Section: 一般
• Research Field: Economic policy
• Research Institution: Kansai University
• Principal Investigator: Suzuki Tomoya 関西大学, 経済学部, 教授 (40411285)
• Project Period (FY): 2016-04-01 – 2020-03-31
• Keywords: 紛争 / リスクプレミアム / 景気循環 / 移民 / 難民 / 海外送金 / 小国開放経済

Outline of Final Research Achievements

An interest rate risk premium in a country increases not only in response to an increase in the country’s external debt but also because of social turmoil in the country. The assumption of this study is that an exogenous shock to the interest rate represents the increase in the risk premium caused by social turmoil. The study found that the interest rate shocks accounted for approximately 10% of the variation in output growth in South Africa.
Monetary expansion under a flexible exchange rate regime might cancel out the negative effect of the interest rate shock on output growth. However, this study also found that replacing a fixed exchange regime with an inflation targeting rule under a flexible exchange rate regime would increase the volatility of the interest rate and hence that of consumption, thereby decreasing the welfare of risk-averse households in a small open economy where the availability of long-term bonds was limited for the monetary operation.

Free Research Field

マクロ経済学

Academic Significance and Societal Importance of the Research Achievements

本研究は、社会的混乱にある国ではリスクプレミアムの変動が景気循環を有意に説明することを明らかにし、国家間の経済的な結びつきが緊密な現在、遠い国の政情変化に対する注意を喚起する。また、リスクプレミアムの拡大を相殺するように変動相場制の下で金融政策をとることは可能だが、長期債券の揃っていない国では家計の効用を低下させることが本研究で明らかになり、そのような国では慎重な政策ルールの変更が求められる。