home-Designers-Forecasting the vector of interest rates. Forecasting interest rates based on the theory of deterministic chaos as a method of managing interest rate risk in commercial banks Galkin, Dmitry Evgenievich

Forecasting the vector of interest rates. Forecasting interest rates based on the theory of deterministic chaos as a method of managing interest rate risk in commercial banks Galkin, Dmitry Evgenievich

To model interest rate levels in statistics, various types of equations are used, including polynomials of various degrees, exponentials, logical curves and other types of functions.

When modeling interest rate levels, the main task is to select the type of function that most accurately describes the development trend of the indicator being studied. The mechanism for determining the function is similar to choosing the type of equation when constructing trend models. In practice, the following rules are used to solve this problem.

1) If the dynamics series tends to monotonic increase or decrease, then it is advisable to use the following functions: linear, parabolic, power, exponential, hyperbolic or a combination of these types.

2) If the series tends to rapidly develop the indicator at the beginning of the period and decline towards the end of the period, then it is advisable to use logistic curves.

3) If a series of dynamics is characterized by the presence of extreme values, then it is advisable to choose one of the variants of the Gompertz curve as a model.

In the process of modeling interest rate levels, great importance is given to careful selection of the type of analytical function. This is explained by the fact that an accurate description of the pattern of development of an indicator identified in the past determines the reliability of the forecast for its development in the future.

The theoretical basis of statistical methods used in forecasting is the property of inertia of indicators, which is based on the assumption that the pattern of development that existed in the past will continue in the predicted future. The main statistical forecasting method is data extrapolation. There are two types of extrapolation: prospective, carried out into the future, and retrospective, carried out into the past.

Extrapolation should be assessed as the first step in making final forecasts. When applying it, it is necessary to take into account all known factors and hypotheses regarding the indicator being studied. In addition, it should be noted that the shorter the extrapolation period, the more accurate the forecast can be obtained.

IN general view extrapolation can be described next function:

y i + T = ƒ (y i , T, a n), (26)

where y i + T – predicted level;

y i – current level of the predicted series;

T – extrapolation period;

and n is the parameter of the trend equation.

Example 3´´. Based on the data in example 3, we will extrapolate to the first half of 2001. The trend equation is as follows: y^ t = 10.1-1.04t.

y 8 = 10.1-1.04*8 = 1.78;

y 9 = 10.1-1.04*9 = 0.78.

As a result of data extrapolation, we obtain point forecast values. The coincidence of actual data for future periods and data obtained by extrapolation is unlikely for the following reasons: the function used in forecasting is not the only one to describe the development of the phenomenon; the forecast is carried out using a limited information base, and random components inherent in the levels of the initial data influenced the result of the forecast; unforeseen events in the political and economic life societies in the future can significantly change the predicted development trend of the indicator being studied.

Due to the fact that any forecast is relative and approximate, when extrapolating interest rate levels, it is advisable to determine the boundaries of the confidence intervals of the forecast for each value y i + T. The boundaries of the confidence interval will show the amplitude of fluctuations in the actual data of the future period from the predicted ones. In general, the boundaries of confidence intervals can be determined by the following formula:

y t ±t α *σ yt , (27)

where y t is the predicted level value;

t α – confidence value determined based on Student’s t-test;

σ yt – root mean square trend error.

In addition to extrapolation based on the alignment of series according to the analytical function, the forecast can be carried out using the extrapolation method based on the average absolute increase and the average growth rate.

The use of the first method is based on the assumption that the general trend in the development of interest rate levels is expressed linear function, i.e. there is a uniform change in the indicator. To determine the predicted level of loan interest for any date t, the average absolute increase should be calculated and sequentially summed up by the last level of the dynamics series as many times as the time periods for which the series is extrapolated.

y i + T = y i + ∆¯*t, (28)

where i is the last level of the period under study for which ∆¯ is calculated;

t – forecast period;

∆¯ - average absolute increase.

The second method is used if it is assumed that the general development trend is determined by an exponential function. Forecasting is carried out by calculating the average growth rate raised to a power equal to the extrapolation period.

Investors for almost everyone financial markets to one degree or another, they are concerned about the issue of future interest rates. For example, for holders of treasury bonds this is one of the key issues. If investors in the bond market believe that interest rates will rise in the future, then they should probably avoid long-term bonds in favor of obligations with shorter maturity periods.

Yield curve
In the United States, the Treasury yield curve is a key driver of all domestic interest rates and also influences global rates. Interest rates on all other categories of bonds rise and fall in line with Treasuries, which are debt securities issued by the U.S. government. To attract investors, any debt securities that carry more risk than Treasuries must offer higher yields. For example, the rate on a 30-year mortgage is normally set at 1% to 2% above the yield on a 30-year Treasury note.

Below is the Treasury yield curve since December 5, 2003 ( diagram 1). This is the "normal" shape of the curve because it slopes upward and is curved accordingly:

Let's look at the three elements of this curve. First, it shows nominal interest rates. Inflation erodes the value of future coupon and principal payments; the real interest rate is the yield minus inflation. Therefore, the yield curve combines expected inflation and real interest rates. Secondly, Federal backup system directly adjusts only the short-term interest rate at the very beginning of the curve. The Federal Reserve has three monetary policy tools, the most powerful of which is the federal funds rate, which is the overnight lending rate. Third, the remainder of the curve is determined by supply and demand at bond auctions.

Chart 1. Treasury yield curve.

Sophisticated institutional buyers have their own yield requirements, which, along with their appetite for government bonds, determine how these institutional buyers bid for government bonds. Because these buyers have opinions about inflation and interest rates, many believe that the yield curve is the " magic crystal", which predicts future interest rates. In this case, investors assume that only unexpected events (such as an unexpected rise in inflation) will shift the yield curve up or down.

Long term rates follow short term rates Technically, the Treasury yield curve could change different ways it may move up or down (parallel changes), become flatter or steeper (slope change), or become more or less arched in the middle (curvature change).

Chart 2 compares the 10-year Treasury yield (red line) with the 1-year Treasury yield (green line) from June 1976 to December 2003. The blue line reflects the differential between these two returns:


Diagram 2. Yield on 10-year and 1-year bonds.

Looking at Figure 2, two observations can be made. First, these two returns moved up and down almost together (correlation was approximately 88%). Therefore, parallel changes are quite common. Second, although long-term rates follow short-term rates in direction, they tend to lag in magnitude. What is certain is that when short-term rates rise, the differential between 10-year and 1-year yields tends to narrow (the differential curve flattens), and when short-term rates fall, the differential widens (the curve steepens). In particular, the increase in rates from 1977 to 1981 was accompanied by a smoothing and inversion of the curve (negative differential); the rate cuts from 1990 to 1993 resulted in a steeper differential curve; last decline rates from March 2000 to the end of 2003 resulted in a very steep differential curve by historical standards.

Demand Offer
So what moves the yield curve up or down? Within the framework of this article, we cannot pay due attention to the complex dynamics of capital movements, under the interaction of which market interest rates are formed. But understand that the Treasury yield curve reflects the cost of US government debt, and therefore ultimately reflects supply and demand.

Supply factors
Monetary policy
If the Federal Reserve wants to increase the federal funds rate, it supplies more short-term securities to open market operations. An increase in the supply of short-term securities limits the amount of money in circulation as borrowers give money to the Federal Reserve. In turn, this decrease in the money supply increases the short-term interest rate because there is less money in circulation available to borrowers. By increasing the supply of short-term securities, the Federal Reserve is pushing up the left end of the curve, and yields on near-term securities will quickly adjust accordingly.

Can we predict future short-term rates? According to expectations theory, long-term rates include forecasts of future short-term rates. Let's look at the actual yield curve for December 2003 shown above ( diagram 1), which is "normal" but very cool. The one-year yield is 1.38%, and the two-year yield is 2.06%. If you wanted to invest for a two-year period, and if interest rates were unchanged, then you would be better off buying two-year bonds outright (which have a higher yield) instead of buying one-year bonds and then rolling over. However, according to expectations theory, the market predicts an increase in the short-term rate. Therefore, at the end of the first year, you will be able to switch to one-year bonds with a more favorable yield and, as a result, will receive approximately the same yield as two-year securities. In other words, expectations theory says that a steeper yield curve predicts higher future short-term rates.

Unfortunately, the theory itself does not work; interest rates often remain unchanged during a normal (upward sloping) yield curve. This is likely due to the fact that longer-term securities are associated with certain uncertainty regarding interest rates and therefore imply additional returns. If we look at the yield curve from this perspective, the two-year yield contains two elements: a forecast of the future short-term rate plus an additional yield for uncertainty (i.e., a risk premium). So we could say that a steeply sloping yield curve portends an increase in short-term rates. On the other hand, a curve with a smooth slope does not predict any change in the short-term rate; the upward slope should only reflect the additional return for the uncertainty associated with long-term obligations.

Since surveillance of the Federal Reserve is professional occupation, it is not enough to wait for the actual change in the federal funds rate. It is important for an investor to try to stay one step ahead of monetary authorities' decisions by waiting instead of watching for changes in interest rates. Market participants around the world scrutinize the wording of every Federal Reserve statement (and Fed policymakers' speeches) in an attempt to discern their future intentions. Lately, the Federal Reserve has become increasingly transparent in its decisions. For example, in August 2003, the Federal Reserve said it would keep its policy rate low for a significant period of time, so market participants in the following months simply waited for the Fed to drop that phrase and thus signal its intention to raise the federal funds rate. .

Fiscal policy
When the US government meets its budget deficit, it borrows money by issuing long-term Treasuries. The more the government borrows, the more debt it issues. When borrowing increases, at some point the US government must increase the interest rate to allow for further lending. However, foreign creditors are always happy to purchase US government debt, as they have high liquidity, and the United States has never defaulted on its obligations (in fact, in late 1995, it was close to default, but the Secretary of the Treasury at the time, Robert Rubin, averted the threat and called a bond default “unthinkable and something akin to nuclear war”). However, foreign creditors can easily find an alternative in the form of European bonds (Eurobonds), and so they can demand a higher interest rate if the US tries to sell too much of its debt.

Demand factors
Inflation
If we assume that holders of US debt expect to receive a given real yield, then an increase in inflation expectations will raise the nominal interest rate (nominal yield = real yield + inflation). Inflation also explains why short-term rates move faster than long-term rates. When the Federal Reserve raises short-term rates, long-term rates also rise, reflecting the expectation of higher short-term rates in the future. However, this increase is tempered by lower inflation expectations, because higher short-term rates also mean lower inflation (as the Fed delivers more short-term Treasuries, it raises money and limits the money supply).


Diagram 3. Impact of an increase discount rate on yields (in blue the initial yield curve, in green after the Fed rate hike).

An increase in the fed funds rate tends to flatten the yield curve because the yield curve reflects nominal interest rates: higher nominal rate= higher real rate+ lower inflation.

Economic forces
Factors that create demand for Treasuries include economic growth, currency competitiveness and hedging opportunities. Just remember: anything that increases demand for long-term Treasuries tends to put downward pressure on interest rates (higher demand = higher price = lower yields or interest rates), and less demand for bonds tends to put upward pressure on interest rates. . A stronger economy tends to make corporate (private) debt more attractive than government debt, reducing demand for it and raising rates. A weaker economy, on the other hand, stimulates "demand for quality", increasing demand for Treasuries, leading to lower yields. It is sometimes assumed that a strong economy will automatically force the Federal Reserve to raise short-term rates, but not necessarily. Only when there is a threat that growth will translate into higher prices is the Federal Reserve likely to raise rates.

In the global economy, US Treasuries compete with the debt securities of other countries. From a global perspective, US bonds represent an investment in both US real interest rates and the dollar.

Finally, Treasuries play a huge role as a hedge (insurance) for market participants. In a falling interest rate environment, many holders of mortgage-backed securities, for example, can hedge their risk by purchasing long-term bonds. These insurance purchases can play a big role in demand, helping to keep rates low, but at the same time, they can contribute to market instability.

Conclusion
In this article, we have covered the key factors associated with interest rate movements. On the supply side, monetary policy determines how much government debt and money to put into the economy. On the demand side, the key factor is inflation expectations. However, we have discussed other important factors that influence interest rates, including fiscal policy (i.e. how much the government needs to borrow), as well as demand-side factors such as economic growth and currency competitiveness. We understand that these other factors are constantly changing, but there are two important questions you should continually ask yourself: "Is fiscal policy creating too much supply of debt in the market?" and “will demand for US debt securities continue at the same pace in the global market?”

David Harper

In order for the results of the bond market to be better than the market average, simply purchasing bonds with the highest yield to maturity is not enough. In order to perform better than the market, it is necessary to know how the yield required by investors from a particular bond issue will change (the expected change in the level of liquidity and credit quality of the issue), and, more importantly, what the situation with the level of interest rates in the economy will be in in general.

This will allow you to keep mostly short-term securities in your portfolio in anticipation of an increase in interest rates (the decrease in their value will be less than that of long-term ones). In the event of an expected decrease in the level of interest rates, the portfolio will predominantly contain bonds with a longer duration (the increase in their value will be more significant than that of short-term bonds).

In order to determine the vector of the level of interest rates in the economy as a whole, Arsagera Management Company uses 5 models. All these models are based on the arbitrage principle.

Interest rate level vector

To determine what the level of interest rates will be in the future, Arsagera Management Company uses several economic models, each of which describes the behavior of different groups of economic agents in certain economic conditions.

Inflation model

The inflation model takes into account the behavior of domestic investors. Within the framework of this model, the level of interest rates in a country is compared with the level of inflation in the same country (the inflation forecast for Russia is based on forecasts by the Ministry of Economic Development and Trade). The basic premise of this model is that investors in different countries focus on the same level of real return (return reduced by the inflation rate in the country) when investing in instruments with the same level of risk. Thus, knowing what real profitability investors expect in various countries ah from investments with a certain level of risk, we, by predicting the level of inflation in Russia, can say what the profitability of specific instruments should be so that investors would be interested in investing within the country and not outside its borders.

Example. The average yield on the most reliable corporate bonds in Russia is 7.5%. The inflation rate is expected to be 9.9% over the next year. IN THE USA average level the yield on the most reliable corporate bonds is 5%, and expected inflation is 2.2%. Thus, it turns out that in Russia the real return on investment will be -2.4%, and in the USA - +2.8%. We see that investors are more interested in investing in the US market until the real returns on instruments with the same level of risk level out. The vector of the level of interest rates in Russia according to this model is +520 percentage points.

Money rate parity model

This model takes into account the behavior of global players involved in cross-border investment of capital. Since investing funds in foreign (in relation to such an investor) markets involves transferring funds into the currency of another country, the final return that such an investor expects is affected by the expected change exchange rates. The presence of a large number of investors engaged in cross-border investments leads to an equalization (on a global scale) of returns on instruments with the same level of risk.

Thus, given a forecast for the future exchange rate of currencies and knowing the level of interest rates in one of these countries, we can say what level of interest rates investors expect to see in the second country.

Example. Let's assume that the current exchange rate of the ruble to the US dollar is 50 rubles per dollar. The rate expected in a year is 55. Therefore, if the current return on instruments with a certain level of risk in the United States is 10% per annum, then the return expected by investors on Russian instruments with the same level of risk in a year is 21% per annum (to compensate for the expected depreciation of the ruble). Since forecast values ​​of exchange rates are announced not only by the Ministry of Economic Development, but also by leading investment institutions in the West, we can calculate what kind of profitability they expect from Russian assets.

Credit-deposit model

The credit and deposit model consists of three submodels. These models take into account the behavior of different groups of domestic investors:

  • Borrowers (legal entities) who choose the method of raising funds for the development of the enterprise.

An enterprise chooses from two alternatives: either raise funds by placing a bond issue, or take out a loan from a bank. A “cheaper” method will be more in demand and over time, rates (taking into account all costs) in both markets - bond and credit - will level out.

  • Banks choosing a method of investing funds that will bring them greater profitability.

When placing funds, banks choose between issuing a loan to an enterprise and purchasing corporate bonds. The divergence of yields in these markets will inevitably lead to a flow of capital and yields will level out. At the same time, the liquidity for a bank loan and a bond is different, which is also taken into account in the model in the form of a liquidity premium.

  • Enterprises and population who are trying to place temporarily free funds with the highest yield.

By placing temporarily available funds, enterprises and households choose between purchasing bonds and opening a deposit in a bank. As in the previous model, the actions of participants seeking to maximize their returns will equalize returns in these markets.

The models described above allow us to understand what tools each of the groups discussed will use to achieve their goals, and how this will affect the level of interest rates in various markets. The results of all the models described above are weighted depending on the importance of the group of economic agents focusing on a particular model.

Having received the vector of interest rates, we can say at what yield investors in a year will be willing to buy any of the bond issues currently circulating on the market. Next, by discounting coupon payments and payments of the bond body at the rate that investors will demand in a year from investing in such securities, we calculate the future value of the bonds.

For example, the results of model calculations indicate that in the coming year the average level of return required by investors will increase by 0.5% compared to the current level. In this case, we need to choose which of two bond issues to purchase:

  • Company-1 - duration 1 year, coupon rate 10%, payments made quarterly;
  • Company-5 - duration 5 years, coupon rate 10%, payments made quarterly.

If within five years interest rates and, as a consequence, the return required by investors remain at current levels, then you can buy either of the two bond issues. The return on both investments will be the same and amount to 10% per annum.

In the case under consideration, when we expect an increase in interest rates by 0.5%, the wrong choice can significantly reduce the efficiency of investments.

In the case of the issue of Company-1, despite the fact that the required yield from these bonds will be 10.5% per annum, while the coupon payments on these bonds will be 10% per annum, the investor, after redemption of the bond issue, will receive its full face value price. He will be able to invest the funds received in bonds of a company with the same credit quality and liquidity, but the coupon rate on them will already be 10.5%.

If the investor’s funds are invested in Company-5 bonds, the repayment of which will occur only in five years, then the return on his investment will be lower.

The above example shows the importance of correctly forecasting the level of interest rates when choosing bonds.

Coupon payments are 10% per annum, while the required return on an investment in bonds of the same credit quality and liquidity would be 10.5% per annum.

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1 18 S.A. Poluyakhtov, V.A. Belkin S.A. Poluyakhtov, V.A. Belkin UDC Kondratiev interest rate cycles as a basis for forecasting its dynamics Abstract. The article, based on extensive statistical material, proves the hypothesis that cyclical fluctuations in bank interest rates on loans are determined by solar activity cycles. On this basis, it is possible to predict the interest rate in the medium and long term, and, consequently, the future state of the global and Russian economy. Summary. Extensive statistical material helped the authors to prove the hypothesis that cyclical fluctuations of the bank credit interest rate are determined by solar cycles. This facts makes it possible to forecast an interest rate in medium-term and long-term perspective and consequently to predict future economic situation in the world and in Russia as well. Keywords. cyclicality of the bank interest rate, solar activity cycles, cyclical development of the economy, forecasting economic crises, forecasting the bank interest rate. Key words. Cyclical fluctuations of the bank credit interest rate, solar cycles, cyclical development of the economy, forecast of economic crisis, forecast of bank interest rate. Global financial crisis once again exposed the problem of inadequate forecasting of key economic indicators and, as a consequence, an overly optimistic view of the governments of various countries on the future economic situation in the world. One of the reasons for this situation is the lack of forecasts for one of the most important economic indicators of the bank interest rate. In his article “On the Interest Rate Forecast,” S. Moiseev notes that “while interest rates abroad are well predictable even without central bank forecasts, in Russia there is a shortage of information about the future dynamics of the money market. Fortune telling on interest rates is one of the most complex analyzes and, as a rule, estimates of future rates are not included in consensus forecasts and surveys of professional forecasters." Unable to obtain a percentage forecast from official sources, many economists decide to forecast it themselves. However, the forecasting methods available today are either too primitive or so labor-intensive that they are inaccessible to most of them. Therefore, we propose to develop a method for predicting interest, based on its connection with solar activity cycles (hereinafter referred to as SA), which will give a more accurate forecast without any labor-intensive calculations, which will allow it to be used by any economic entity. VALUE OF THE GLOBAL GUIDE No. 11

2 Kondratieff cycles of interest rates As a starting point, we accept the hypothesis of V.A. Belkin that “cyclical fluctuations of the main macroeconomic indicators, including such as the unemployment rate, inflation rate and average credit rate, the national currency exchange rate, the deficit (surplus) of the consolidated budget, are determined by solar activity cycles.” To test this hypothesis for the period from 1947 to July 2010, we took average annual data on Wolf numbers, which are proportional to the number of spots on the solar disk and characterize SA. For the same period, the prime rate (the interest rate closest to the risk-free rate) was taken as the bank interest rate that influences the state of the world economy. Next, we constructed graphs of changes in these indicators over time (Fig. 1). As this chart shows, since 1968, the cyclical nature of the prime rate has been largely determined by CA cycles. Rice. 1. Dynamics of changes in the average annual Wolf numbers and the prime rate rate It is worth noting some features of the cyclical nature of the SA and the prime rate rate. Thus, the growth phase of SA lasts on average for 4 years, and the falling phase lasts 7 years, the total duration of the cycle is on average 11 years. That is, the SA cycle has a sharp rise and a smooth decline. At the same time, during the growth phase of the SA, there is also a phase of growth in the bank interest rate, and when the SA cycle reaches its peak, the interest rate immediately or after 1 year also reaches its maximum value. During the CA reduction phase, the bank interest rate also decreases. However, approximately one to two years before the next CA minimum, the bank interest rate reaches its next maximum. While we cannot accurately determine the cause of the repeated cycle bank rate within the framework of the SA cycle and can only make assumptions or hypotheses. ECONOMY

3 20 S.A. Poluyakhtov, V.A. Belkin To get rid of the influence of short-term fluctuations in the prime rate, the average values ​​of the analyzed indicators were calculated by year at the inflection points of the SA cycle curve and the corresponding graphs were constructed (Fig. 2). From this diagram it can be seen that the 11-year CA cycles sufficiently coincide with the bank interest rate cycles (the correlation coefficient is 79%), which coincide with the cycles of C. Juglar. That is, an increase in SA leads to an increase in the prime rate and, as a consequence, at maximum points to an economic crisis. Thus, it is the cyclical activity of the sun that is the key factor determining changes in bank interest rates. The identified connection also reveals the real reason the cyclical nature of this indicator and the development of the world economy as a whole. Let us show that such rates as LIBOR, EURIBOR change almost synchronously with the prime rate. Thus, we will prove that SA cycles determine the dynamics bank interest all over the world, not just in the USA. Rice. Fig. 2. Dynamics of changes in the average annual Wolf numbers and the prime rate at inflection points (extrema) of the solar activity curve. To study the relationship between prime rates and LIBOR, the LIBOR rate for loans up to one year was chosen. The values ​​for it were taken from the economic statistics website MORTGAGE-X. The following is a diagram that clearly shows the dynamics of synchronous changes in the average annual values ​​of the prime rate and LIBOR rates (for a period of up to one year) (Fig. 3). VALUE OF THE GLOBAL GUIDE No. 11

4 Kondratieff interest rate cycles Fig. 3. Dynamics of changes in the average annual values ​​of prime rate and LIBOR (for up to one year) To study the relationship between prime rate and EURIBOR, the EURIBOR rate for loans up to one year was selected. The values ​​for it were taken from the ItIsTimed website. Next, we constructed a diagram that clearly shows the dynamics of a highly synchronous change in the average annual values ​​of the prime rate and EURIBOR rates (for a period of up to one year) (Fig. 4). In The EURIBOR rate changed synchronously with the prime rate, but with a time lag of approximately 1 year. Rice. 4. Dynamics of changes in the average annual values ​​of prime rate and EURIBOR (for a period of up to one year) E C O N O M I C A

5 22 S.A. Poluyakhtov, V.A. Belkin The presented diagrams clearly and convincingly prove the high degree of synchronicity of changes in the main international interest rates LIBOR rates and EURIBOR and prime rate rates. Thus, the connection we have proven between CA and the prime rate can be extended to other interest rates, in particular LIBOR and EURIBOR. Based on the obtained result, as well as the forecast for the 24th SA cycle (Fig. 5), it is possible to develop a forecast for the value of the prime rate. The next SA peak is expected in 2013, and, therefore, we can expect an increase in the prime rate until 2013, and in 2013. We predict the next maximum of this rate and the subsequent global financial crisis. Of course, the actual activity of the Sun in the 24th cycle may differ from the predicted one, since these cycles vary somewhat in duration (9-11 years). In this case, there will be some corresponding time shift in the specified date of the next prime rate peak and the global economic crisis. Rice. 5. Forecast of the 24th cycle of solar activity In Fig. Figure 5 shows that the next SA minimum should occur around 2020. Consequently, there will be another increase in interest rates around 2018, followed by another increase in 2019 and 2020. a slowdown in US real GDP growth or an economic crisis. In order to give a more accurate forecast of the value of the prime rate in 2013, let us turn to N. Kondratiev’s wave theory, on the basis of which 5 economic cycles are identified, about a year in length: issue No. 11

6 Kondratieff cycles of interest rates cycle from 1790 to . 2 cycle from to gg. 3 cycle from to gg. 4 cycle from to gg. Cycle 5 with Kondratieff cycles are subject to all major macroeconomic indicators, including the prime rate bank interest rate. At the same time, at the end of the cycle, the rate reaches its maximum value. To confirm our hypothesis, let us analyze the diagram presented in Fig. 1. It shows that the penultimate minimum of economic indicators of the world economy was in 1982 and was accompanied by a maximum in the bank interest rate, which we propose to call the Kondratieff maximum of the prime rate rate (K-rate). Before the K-rate there was an increase in the prime rate, after a decrease. We propose to call these cycles large prime rate rate cycles. According to research by Japanese scientist Shimanaka Yuji, confirmed by the Japan Center economic research(JERC) and published in The Wall Street Journal from, one Kondratieff cycle equals five SA cycles, or 55 years. Based on this theory and the fact that two SA cycles took place during the period from 1982 to 2010, it can be assumed that 2010 is the inflection point of a large prime rate cycle and its growth will be observed in the future. Consequently, the local maximum prime rate in 2013 will be higher than the local maximum of this indicator in 2009 and will be approximately at the level of the local maximum in 2000. Thus, the prime rate rate in 2013 will reach its next intermediate maximum in the medium term at the level of 8-9%, which is highly likely to lead to another global financial crisis (Fig. 6). Rice. 6. Kondratiev cycle of the prime rate rate and its forecast until 2020 E C O N O M I C A

7 24 S.A. Poluyakhtov, V.A. Belkin Similarly, the local maximum of the prime rate in 2018 will be higher than the local maximum of this indicator in 2013, but lower than the local maximum of this indicator in 1989, that is, its value will be approximately at the level of 10% (Fig. 6 ). Based on the fact that changes in the prime rate are synchronous with changes in the LIBOR and EURIBOR interest rates, we can expect a corresponding increase in these rates to 6% and 5%, respectively, in 2013 and LIBOR at 8.5% in 2018. Since 2003, due to the globalization of the world economy and the high involvement of the Russian economy in it, there has been a synchronization of US GDP and Russian GDP with higher volatility of Russian GDP. Consequently, a change in the prime rate inevitably leads to a similar change in the Russian bank interest rate on loans, so by 2013 in Russia the bank interest rate on loans issued legal entities for a period of up to 1 year, will also increase to the level of 2000 and amount to 18-20% per annum. Maximum solar activity will continue to lead to an increase in Russian bank interest rates on loans and, accordingly, to another financial crisis. The obtained result is extremely important not only for government officials, but also for the entire economically active population, since on its basis it is possible to make long-term investment decisions and objectively assess the future development of the country’s economy. To explain the reason for the identified connection, one can cite the research of the great Russian scientist A. Chizhevsky, who argued that psychopathic epidemics, panic moods, mass hysteria, hallucinations, etc., as well as modification of nervous excitability of neuropsychic tone are in close connection with SA cycles. Cyclical fluctuations in the above sentiments of pessimism and optimism lead to cyclical fluctuations in the amount of risk payment, which is taken into account in the interest rate, and to its cyclical fluctuations. So, as a result of this study: Identified high degree connections between CA cycles and bank interest rates using the prime rate as an example; It is proposed to enter into scientific circulation the concepts of the Kondratieff cycle of the bank rate (using the example of the prime rate rate) and the Kondratieff maximum (minimum) of this rate; A medium- and long-term forecast of the next maximum prime rate and global financial crises has been developed; A high degree of synchronicity in the dynamics of prime rate, LIBOR, EURIBOR rates is shown; A medium-term forecast for the next maximum rates of LIBOR, EURIBOR and the Russian interest rate on loans in 2013 has been developed. VALUE OF THE GLOBAL GUIDE No. 11

8 Kondratieff cycles of interest rates References 1. Moiseev S. “On the forecast of the interest rate” URL: post/124329/ 2. Belkin V. A. Interrelation of cycles of solar activity and cycles of main macroeconomic indicators // Socio-economic development of Russia in the post-crisis period : national, regional and corporate aspects: collection. m-lov 27 int. scientific-practical conference Part 1, Chelyabinsk: UrSEI AT and SO, S; 3. Statistical data from the Center for Data Analysis on the Impact of the Sun (Belgium) URL: 4. Data from the economic statistics site MORTGAGE-X URL: com 5. Data from the site ItIsTimed URL: php 6. NASA research materials URL: solnechnyiy-prognoz/ 7. Korotaev A.V., Tsirel S.V. Kondratiev waves in global economic dynamics / System monitoring. Global and regional development / Responsible. ed. D. A. Khalturina, A. V. Korotaev. M.: Librocom/URSS, C URL: cliodynamics.ru/download/m02korotayev_tsirel_kondratyevskie_volny.pdf 8. The Union of Intelligible Associations // Configuring: Transformative policy cycles (9. Chizhevsky A.L. Terrestrial echo of solar storms. 2nd ed. M.: Thought, pp. E K O N O M I K A


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Many market participants are interested in being able to predict the future direction of the exchange rate. Whether you are a large company or an individual trader, a currency forecast is vital to minimizing risks and increasing profits.

There are a huge number of methods that allow you to predict the behavior of a currency pair. However, such a large number is most likely due to the relatively equal effectiveness of each method. That is why it is extremely difficult to obtain a truly high-quality forecast. However, this article will focus on the four most popular methods for forecasting exchange rates.

Purchasing power parity (PPP) theory

Purchasing power parity (PPP) is perhaps the most popular method due to its constant mention in textbooks in economics. The PPP principle is based on the theoretical “law of one price,” which states that identical goods in different countries should have the same price.

For example, according to this rule, a pencil in Canada must cost the same as the same pencil in the United States, taking into account the exchange rate and excluding exchange and transportation costs. In other words, there should be no reason for speculation when someone will “cheaply” buy pencils in one country in order to sell them profitably in another.

Based on this PPP theory, the exchange rate should change in such a way as to compensate for the rise in prices due to inflation. For example, suppose that prices in the United States are expected to rise by 4% in the coming year, while in Canada they are expected to rise by only 2%. The inflation differential will be:

This means that the rate of price growth in the US will be faster than that in Canada. According to the purchasing power parity principle, the US dollar would have to depreciate by about 2% for the prices of goods in two countries to remain relatively equal. For example, if the exchange rate was 90 US cents per Canadian dollar, then according to the PPP method, the predicted rate would be:

(1 + 0.02) x ($0.90 per 1 CAD) = 0.918 US per 1 CAD

This means that the Canadian dollar should rise to 91.8 US cents per dollar.

The most popular application of the PPP method is illustrated by the example of the Big Mac index, compiled and published in the British The magazine Economist. The Funky Index is an attempt to determine whether a currency is undervalued or overvalued based on the price of a Big Mac in different countries. Since the Big Mac is a universal product, the same in all countries where it is sold, a comparison of prices for it formed the basis of the index.

The principle of relative economic stability

The name of this approach speaks for itself. The rate of economic growth in different countries is taken as a basis, which allows us to predict the direction of movement of the exchange rate. The rationale behind this method is that a healthy economic climate and potentially higher growth rates are more likely to attract investment from abroad. And to invest funds, a foreign investor will have to buy the national currency, which will lead to increased demand and, accordingly, an increase in the price of the currency.

However, such an approach is based not only on the relationship between the relative economic stability of the two countries. It also allows you to get an idea of ​​investment flows. For example, a certain level of interest rates can attract investors to a country, among other things. Thus, higher interest rates become tempting for those investors who are trying to achieve maximum returns on their investments. As a result, the demand for the national currency increases, and this increases its value.

Conversely, low interest rates can in some cases discourage investors, reducing investment inflows, or even encourage domestic currency lending for other investments. A similar situation arose in Japan, when interest rates dropped to record lows. This trading strategy is known as a carry trade.

Unlike PPP theory, the principle of relative economic stability will not help predict the size of the exchange rate. This method gives investors faster general idea about the direction of currency movement (strengthening or weakening), as well as the strength of the impulse. Most often, to obtain a more complete picture, the described principle is used in combination with other forecasting methods.

Construction of an econometric model

Another popular way of forecasting exchange rates is to create a model that links the exchange rate of a particular currency with all the factors that, in the opinion of the trader, influence its movement. Typically, when constructing an econometric model, quantities from economic theory are used. However, any variable that is believed to have a strong influence on the exchange rate can be added to the calculations.

Let's say a forecaster for a Canadian company has been tasked with creating a forecast for the USD/CAD exchange rate for the coming year. After careful research and analysis, the following factors are selected as the key ones: the interest rate differential between the USA and Canada (INT), the difference between the GDP growth rates (GDP) and the difference between the income growth rates in both countries (IGR).Then the econometric model will look like this: way:

USD/CAD (1 year) = z + a(INT) + b(GDP) + c(IGR)

Without going into detail regarding the principles of constructing the equation, after obtaining the model, you can simply substitute the variables INT, GDP and IGR and get the necessary forecast. Coefficients a, b and c determine how strongly each of these factors affects the exchange rate and the direction of movement (depending on whether the coefficient is negative or positive). This method is perhaps the most complex and time-consuming of all those described above. However, when you already have a ready-made model, you can easily get quick forecasts by plugging in new data.

Time series analysis

The last method discussed is time series analysis. This method is purely technical and is not related to economic theory. One of the most popular models in time series analysis is the autoregressive moving average (ARMA) model. According to this method, past behavior and price patterns can be used to predict the future behavior and price patterns of a particular pair. To do this, time series of data are entered into a special computer program, after which the program evaluates all parameters and creates an individual model.

Conclusion

Forecasting exchange rates is an extremely difficult task. It is for this reason that many companies and investors simply insure currency risks. Others understand the importance of predicting exchange rates and try to understand the factors that influence them. The 4 methods described above will be a good start for this category of market participants.



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