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Consumption and the interest rate - A changing dynamic?
Karlstad University, Faculty of Arts and Social Sciences (starting 2013), Karlstad Business School (from 2013). Örebro Univ, Sch Business, S-70182 Örebro, Sweden.ORCID iD: 0000-0002-9249-8306
2020 (English)In: Applied Economics, ISSN 0003-6846, E-ISSN 1466-4283, Vol. 52, no 51, p. 5564-5578Article in journal (Refereed) Published
Abstract [en]

This article addresses the question of whether the relation between the short interest rate and consumption growth has been stable over the financial crisis and the ensuing period of unconventional monetary policy. The question is addressed by assessing models using constant or drifting parameters as well as models with or without stochastic volatility in a Bayesian VAR framework, based on data from the USA and Sweden. According to the results, the response of interest rates to shocks in consumption growth has decreased for both countries, which could be because the central banks were constrained by the zero lower bound. When shadow rates are used to study the impact of unconventional monetary policy the results suggest that the Federal Reserve successfully maintained an active monetary policy in spite of the zero lower bound. The responsiveness of the Riksbank, on the other hand, decreases in face of the zero lower bound even when unconventional monetary policy is considered. The response of consumption growth to short interest rates is best modelled as constant over the period. Finally, results support the inclusion of stochastic volatility throughout estimations.

Place, publisher, year, edition, pages
Taylor & Francis Group, 2020. Vol. 52, no 51, p. 5564-5578
Keywords [en]
Time-varying parameters, unconventional monetary policy, shadow rates, model selection, stochastic volatility
National Category
Economics
Identifiers
URN: urn:nbn:se:kau:diva-101492DOI: 10.1080/00036846.2020.1765966ISI: 000539119700001Scopus ID: 2-s2.0-85085596371OAI: oai:DiVA.org:kau-101492DiVA, id: diva2:1893038
Available from: 2024-08-28 Created: 2024-08-28 Last updated: 2024-08-28Bibliographically approved

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Nordström, Martin

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CiteExportLink to record
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  • apa
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  • de-DE
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  • nn-NB
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  • Other locale
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Output format
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