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Impact of Interest Rates on Consumption in the US Economy: An Empirical Analysis

Author

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  • Dinsdale, Katie Ann
  • Vasilev, Aleksandar

Abstract

This study assesses the impact of interest rates on consumption, focusing on how changes in the housing and financial markets implicate consumer spending habits. It addresses how interest rates alter foreign consumption, therefore how imports implicate the consumption of domestic products. While the initial results were not statistically significant, further analysis showed how interest rates have only a limited and weak effect on controlling consumption. However, housing and financial variables did influence consumption, particularly durable goods. The study concludes that monetary policy is ineffective and suggests that the US government explore alternative policies. Further research is warranted to assess the long-term effects on other variables on consumption.

Suggested Citation

  • Dinsdale, Katie Ann & Vasilev, Aleksandar, 2025. "Impact of Interest Rates on Consumption in the US Economy: An Empirical Analysis," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 31(1), pages 22-109.
    • Handle: RePEc:zbw:espost:325850
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    File URL: https://www.econstor.eu/bitstream/10419/325850/1/Katie-Aleks-paper.pdf
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    References listed on IDEAS

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    1. Esra Alp & Unal Seven, 2019. "The dynamics of household final consumption: The role of wealth channel," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 19(1), pages 21-32.
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    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)

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