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Is there any relationship between the rates of interest and profit in the U.S. economy?

Ivan Mendieta-Muñoz

Studies in Economics from School of Economics, University of Kent

Abstract: This paper studies the empirical relationship between the Federal funds effective rate and the rate of profit or profit-to-capital ratio in the U.S. economy. The linkages between these two variables are studied: 1) at business-cycle frequencies using various filters and employing cross-correlation, regression and simulation analysis; and 2) using Vector Autoregressive models that unveil the dynamic interactions between the variables. The different empirical results reveal that positive shocks in the fed funds interest rate generate negative responses of the rate of profit, thus corroborating previous findings that show that a tight monetary policy is associated with lower aggregate profitability levels.

Keywords: Fed funds effective real rate; rate of profit; U.S. economy; aggregate profitability (search for similar items in EconPapers)
JEL-codes: E22 E40 E43 (search for similar items in EconPapers)
Date: 2014-12
New Economics Papers: this item is included in nep-mac and nep-mon
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