On The Contribution of Interest Expense (Income) on Total Output
| Autor: | Ahmed Mehedi Nizam |
|---|---|
| Rok vydání: | 2021 |
| Předmět: |
media_common.quotation_subject
banking Context (language use) monetarypolicy transmission mechanism GDP Net interest income Interest expense E50 nominal interest expense domestic credit nominal lending rate 0502 economics and business ddc:330 Econometrics Economics g21 g20 050207 economics E52 HB71-74 e43 Aggregate demand media_common 050208 finance 05 social sciences Investment (macroeconomics) gdp Interest rate Nominal interest rate e50 Economics as a science economic multiplier Variance decomposition of forecast errors G20 G21 monetary policy transmission mechanism e52 E43 |
| Zdroj: | Open Economics, Vol 4, Iss 1, Pp 31-56 (2021) |
| ISSN: | 2451-3458 |
| DOI: | 10.1515/openec-2020-0112 |
| Popis: | A decrease in interest rate in traditional view of monetary policy transmission is linked to a lower cost of borrowing which eventually results into a greater spending in investment and a bigger GDP. However, a decrease in interest rate is also linked to a decrease in interest income which, in turn, affects the aggregate demand and total GDP. So far, no concerted effort has been made to investigate this positive inter-relation between interest income and GDP in the existing literature. Here in the first place we intuitively describe the inter-relation between interest income and output and then provide a micro-foundation of our intuitive reasoning in the context of a small endowment economy with finitely-lived identical households. Then we try to uncover the impact of nominal interest income on the macroeconomy using multiplier theory for a panel of some 04 (four) OECD countries. We define and calculate the corresponding multiplier values algebraically and then we empirically measure them using impulse response analysis under structural panel VAR framework. Large, consistent and positive values of the cumulative multipliers indicate a stable positive relationship between nominal interest income and output. Moreover, variance decomposition of GDP shows that a significant portion of the variance in GDP is attributed to interest income under VAR/VECM framework. Finally, we have shown how and where our analysis fits into the existing body of knowledge. |
| Databáze: | OpenAIRE |
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