Interest Rate Hysteresis in Macroeconomic Investment under Uncertainty

Ansgar Belke and Matthias Göcke ()

No 12566, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The interest rate is generally considered as an important driver of macroeconomic investment. As an innovation, this paper derives the exact shape of the "hysteretic" impact of changes in the interest rate on macroeconomic investment under the scenarios of both certainty and uncertainty. We capture the direct interest rate-hysteresis on the investments and the capital stock and, explicitly, of stochastic changes on the interest rate-investment hysteresis. Starting with hysteresis effects on a microeconomic level of a single firm, we apply an explicit aggregation procedure to derive the interest rate hysteresis effects on a macroeconomic level. Based on our simple model we are able to obtain some conclusions about the efficacy of a central bank's interest rate policy, e.g. in times of low or even zero interest rates and high uncertainty, in terms of stimulating macroeconomic investment.

Keywords: forward guidance; interest rate; investment; Mayergoyz-Preisach model; monetary policy; path dependence; non-ideal relay; sunk-cost hysteresis; uncertainty; zero lower bound (search for similar items in EconPapers)
JEL-codes: C61 E22 E44 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2019-08
New Economics Papers: this item is included in nep-cba, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Interest Rate Hysteresis in Macroeconomic Investment under Uncertainty (2019)
Working Paper: Interest Rate Hysteresis in Macroeconomic Investment under Uncertainty (2019)
Working Paper: Interest rate hysteresis in macroeconomic investment under uncertainty (2019)
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