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Volatile Interest Rates, Volatile Crime Rates: A new argument for interest-rate smoothing

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  • Garett Jones
  • Ali Kutan

Abstract

Good monetary policy requires estimates of all of its effects: monetary policy impacts traditional economic variables such as output, unemployment rates, and inflation. But does monetary policy influence crime rates? By extending the vector autoregression literature, we derive estimates of the dynamic effect of higher interest rates on crime rates. Higher interest rates have socially and statistically significant positive effects on rates of theft and knife robberies, while effects on rates of burglary and assault are smaller and statistically insignificant. Higher interest rates have no effect on homicide rates. We conclude that monetary policy influences the rate of economically-motivated crimes.

Suggested Citation

  • Garett Jones & Ali Kutan, 2004. "Volatile Interest Rates, Volatile Crime Rates: A new argument for interest-rate smoothing," William Davidson Institute Working Papers Series 2004-694, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2004-694
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    References listed on IDEAS

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    6. Levitt, Steven D, 1997. "Using Electoral Cycles in Police Hiring to Estimate the Effect of Police on Crime," American Economic Review, American Economic Association, vol. 87(3), pages 270-290, June.
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    Cited by:

    1. Yearwood, Douglas L. & Koinis, Gerry, 2009. "Revisting Property Crime and Economic Conditions: An Exploratory Study to Identify Predictive Indicators beyond Unemployment Rates," MPRA Paper 16834, University Library of Munich, Germany.
    2. Hazra, Devika, 2017. "Monetary policy and alternative means of payment," The Quarterly Review of Economics and Finance, Elsevier, vol. 65(C), pages 378-387.
    3. Sourav Batabyal, 2011. "Temporal Causality and the Dynamics of Crime and Delinquency," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 39(4), pages 421-441, December.
    4. Habibullah, M.S. & Law, Siong-Hook, 2008. "Property crime and macroeconomic variables in Malaysia: Some empirical evidence from a vector error-correction model," MPRA Paper 12112, University Library of Munich, Germany.

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    More about this item

    Keywords

    crime; monetary policy; vector autoregressive models (VARs);
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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