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The Effect of Interest Rates on Economic Growth

Author

Listed:
  • Drobyshevsky Sergey

    (Gaidar Institute for Economic Policy)

  • Bozhechkova Alexandra

    (Gaidar Institute for Economic Policy)

  • Trunin Pavel

    (Gaidar Institute for Economic Policy)

  • Sinelnikova-Muryleva Elena

    (Gaidar Institute for Economic Policy)

Abstract

This paper explores the mechanisms, direction and extent to which interest rates can affect economic growth. The authors analyze theoretical concepts and international economic practices in high-interest-rate environments to justify that high nominal and real interest rates may not dampen economic growth if there are mechanisms such as low inflation expectations, economy’s attractiveness to foreign investors, the technological transfer effect, the accumulation of domestic savings. By using a structural vector autoregression (VAR) to evaluate econometrically the effectiveness of the interest rate channel of Bank of Russia’s monetary policy transmission mechanism, the paper provides evidence to suggest that interest rate policy is partially efficient after the global financial crisis.

Suggested Citation

  • Drobyshevsky Sergey & Bozhechkova Alexandra & Trunin Pavel & Sinelnikova-Muryleva Elena, 2017. "The Effect of Interest Rates on Economic Growth," Working Papers wpaper-2017-300, Gaidar Institute for Economic Policy, revised 2017.
    • Handle: RePEc:gai:wpaper:wpaper-2017-300
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    References listed on IDEAS

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    More about this item

    Keywords

    monetary policy; inflation; inflation expectations; nominal interest rate; real interest rate; economic growth; interest rate channel; SVAR model;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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