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The Effect of Interest Rates on Economic Growth

Sergey Drobyshevsky, Alexandra Bozhechkova, Pavel Trunin and Elena Sinelnikova-Muryleva
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Elena Sinelnikova-Muryleva: Gaidar Institute for Economic Policy

Working Papers from Gaidar Institute for Economic Policy

Abstract: This paper explores the mechanisms, direction and extent to which interest rates can affect economic growth. The authors analyze theoretical concepts and international economic practices in high-interest-rate environments to justify that high nominal and real interest rates may not dampen economic growth if there are mechanisms such as low inflation expectations, economy’s attractiveness to foreign investors, the technological transfer effect, the accumulation of domestic savings. By using a structural vector autoregression (VAR) to evaluate econometrically the effectiveness of the interest rate channel of Bank of Russia’s monetary policy transmission mechanism, the paper provides evidence to suggest that interest rate policy is partially efficient after the global financial crisis.

Keywords: monetary policy; inflation; inflation expectations; nominal interest rate; real interest rate; economic growth; interest rate channel; SVAR model (search for similar items in EconPapers)
JEL-codes: E20 E31 E52 E58 G15 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2017, Revised 2017
New Economics Papers: this item is included in nep-cis, nep-mac, nep-mon and nep-tra
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Downloads: (external link) Revised version, 2017 (application/pdf)

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