Working paper/research report

Authors list: Belke, AH; Göcke, M

Publication year: 2019

DOI Link: https://doi.org/10.2139/ssrn.3445832

Title of series: IZA Discussion Paper

Number in series: 12566

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.

Harvard Citation style: Belke, A. and Göcke, M. (2019) Interest Rate Hysteresis in Macroeconomic Investment Under Uncertainty. (IZA Discussion Paper, 12566). Bonn: IZA - Institute of Labor Economics. https://doi.org/10.2139/ssrn.3445832

APA Citation style: Belke, A., & Göcke, M. (2019). Interest Rate Hysteresis in Macroeconomic Investment Under Uncertainty. (IZA Discussion Paper, 12566). IZA - Institute of Labor Economics. https://doi.org/10.2139/ssrn.3445832