Household Consumption and Long-Term Interest Rates
Following the financial crisis there were many questions raised about the proper role and efficacy of monetary and fiscal policy. One such area of debate surrounds the effects of changes to interest rates have on household consumption. This paper use Consumer Expenditure Survey data along with state base Mortgage Interest Rate Survey data to estimate this relationship. The analysis finds a slight but significant positive correlation suggesting that households contracted their spending when interest rates went down. These findings suggest that there are other important factors that determined consumption spending, and that monetary and fiscal policy makers should aim to understand what caused households to lower their spending even as interest rates fell.
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Kaya, Fatih (Georgetown University, 2013)Several studies investigate the relationship between government debt/deficit ratios and the real long-term interest rates, but the empirical evidence is not conclusive enough for consensus building. Evidence for statistically ...