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End of the Road? Impact of Interest Rate Changes on the Automobile Market

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Abstract

The Federal Reserve has kept interest rates at historic lows for the last six years, but eventually rates will return to their long-term averages. That means both policymakers and the public will once again be asking one of the classic questions in monetary economics: What are the impacts of rising interest rates on the real economy? Our recent New York Fed staff report ?Interest Rates and the Market for New Light Vehicles,? considers this question for the U.S. market for new cars and light trucks. We find strong evidence that rising rates will dampen activity: Our model predicts that in the short-run a 100-basis-point increase in interest rates will cause light vehicle production to fall at an annual rate of 12 percent and sales to fall at an annual rate of 3.25 percent.

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  • Adam Copeland & George Hall & Louis J. Maccini, 2015. "End of the Road? Impact of Interest Rate Changes on the Automobile Market," Liberty Street Economics 20151123, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:87082
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    Keywords

    inventories; automobiles; interest rates;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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