Not every economic theory is confirmed by practice. Philip Prokopf (University of Michigan), winner of the second economic research competition for students and doctoral fellows organized by the Bank of Russia and the Russian Journal of Finance and Finance, tests the result of two theories. According to the first, the higher the net worth of the company, the lower the premium for external financing. The second theory holds that changes in the rate of central bank policy affect the net worth of firms, including through loan interest payments. Together, these theories suggest that the greater the financial leverage, the greater the effect of changes in the rate of monetary policy on the cost of funds raised by the firm in the domestic market. However, a study based on data on credit spreads for Russian corporate bonds did not show such a correlation: the effect of changing the policy rate was the same for companies with different levels of leverage.
In contrast, fixed capital investments in the Russian regions respond differently to monetary policy, explained Andrei Shevelev and co-authors from the Siberian Main Branch of the Bank of Russia. Regions with a large share of the mining and quarrying sector in GRP are the least responsive to major price changes, while manufacturing-dominated regions show the strongest response. The authors suggest that the differences revealed may be related to differences in the relative amount, the main sources of investment in the manufacturing, mining and quarrying sectors and the latter’s focus on the foreign market.
Programs that aim to increase housing affordability are not always successful because they lead to increased demand and, in turn, lead to higher housing prices. Ianina Roshchina and Natalia Ilyunkina (Lomonosov Moscow State University) analyze how the mortgage rate support programs implemented by the Russian government in 2015-2016 and 2020-2021 affected housing affordability. The authors concluded that the first program launched amid higher interest rates could be considered a success because the impact of a lower mortgage rate on housing affordability was stronger than that of higher home prices. The second program (6.5% preferential mortgage) designed to prevent a drop in demand in the event of a pandemic has had mixed results: Borrowers have benefited from subsidized interest rates only for a certain period – in some areas, rising home prices have already eliminated all benefits of the program for borrowers by the end of 2020 .
These papers and other new issues of the Russian Journal of Finance and Finance are available on its website.
Central Bank of the Russian Federation Share this content on December 24, 2021 He is solely responsible for the information contained therein. Distributed a year ago, without editing and without modification, on date December 25, 2021 00:16:00 UTC.