Speaker: Milan Stehlík
Institute of Statistics, University of Valparaíso, Chile
Department of Applied Statistics, Johannes Kepler University, Linz, Austria
Title: Dynamical Models for Negative and Stochastic Interest Rates
In many economies including Europe and the United States, real (inflation-adjusted) interest rates have been negative, sometimes as much as -2% (see e.g. Stiglitz, J. (18/4/2016), Abo-Zaid and Garin 2016). And yet, as real interest rates have fallen, business investment has stagnated. The European Central Bank (ECB) has stepped up its stimulus, joining the Bank of Japan and a couple of other central banks in showing that the zero lower bound and the inability of interest rates to become negative is a boundary only in the imagination of conventional economists. During the talk, we will present the dynamics of interest rates (see e.g. Stehlík et al. 2015, 2016 and Kiselík et al 2016), which can both oscillate (change signs) or stay negative/positive for a mid-long term. In this talk, I will explain several behavioral aspects of negative interest rates. Solutions to important issues will be provided. I will answer important questions: e.g. why negative interest rates? What shall we change in computations of financial instruments, e.g. bonds? I will also discuss statistical and mathematical properties of the model, e.g. blow-ups of the solutions in probability (see Stehlík 2007).