Regression analysis of factors impacting interest rates

Guizhou Wang () and Kjell Hausken
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Guizhou Wang: Faculty of Science and Technology, University of Stavanger, 4036 Stavanger, Norway

International Journal of Financial Engineering (IJFE), 2025, vol. 12, issue 01, 1-20

Abstract: This paper investigates the factors that interact with interest rates. The results show that interest rates positively correlate with deviations in inflation, the logarithm of the real GDP (gross domestic product) ratio, the logarithm of the money supply ratio, deviations in unemployment rates, money velocity, deficit, and the dollar index. The interest rates negatively correlate with debt, the Dow Jones Industrial Average (DJIA), debt to GDP ratio, and real GDP growth rate. Regression analysis shows with statistical significance an increase in interest rates with deviations in inflation, money velocity, the dollar index, and a decrease with the DJIA. The analysis is refined by removing insignificant variables and addressing a multicollinearity problem. The results could provide governments and central banks with focal points for developing interest rate policies.

Keywords: Monetary policy; Taylor rule; interest rate; inflation; real GDP; real GDP growth rate; money supply; unemployment; money velocity; debt to GDP ratio; Dow Jones Industrial Average; regression analysis (search for similar items in EconPapers)
JEL-codes: C5 E24 E4 E5 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1142/S2424786323500524

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