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Confirms that demand and not rate of interest affects firms' investment decisions. However, interest rates do affect the economy through mortgage rate and banks' loan policy, that is, through the housing channel (which is accounted for as investment). Raising the interest rate increases the interest rate on mortgages, which decreases the demand for housing over time, i.e., there is lag estimated at about two years. A lot of other demand is also connected to demand for housing, making housing demand a potent economic factor albeit a lagging one.On the other hand, raising the interest rate also increases the payout on government securities and also interest payments on reserves, which adds to government spending. This happens immediately.Brave New WorldDo Interest Rates Really Drive the
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Confirms that demand and not rate of interest affects firms' investment decisions. However, interest rates do affect the economy through mortgage rate and banks' loan policy, that is, through the housing channel (which is accounted for as investment). Confirms that demand and not rate of interest affects firms' investment decisions. However, interest rates do affect the economy through mortgage rate and banks' loan policy, that is, through the housing channel (which is accounted for as investment). Raising the interest rate increases the interest rate on mortgages, which decreases the demand for housing over time, i.e., there is lag estimated at about two years. A lot of other demand is also connected to demand for housing, making housing demand a potent economic factor albeit a lagging one.On the other hand, raising the interest rate also increases the payout on government securities and also interest payments on reserves, which adds to government spending. This happens immediately.Brave New WorldDo Interest Rates Really Drive the
Topics:
Mike Norman considers the following as important:
This could be interesting, too:
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Raising the interest rate increases the interest rate on mortgages, which decreases the demand for housing over time, i.e., there is lag estimated at about two years. A lot of other demand is also connected to demand for housing, making housing demand a potent economic factor albeit a lagging one.
On the other hand, raising the interest rate also increases the payout on government securities and also interest payments on reserves, which adds to government spending. This happens immediately.
Brave New World
Do Interest Rates Really Drive the Economy?
JW Mason | Associate Professor of Economics at John Jay College, City University of New York and a Fellow at the Roosevelt Institute