Is There an 'Interest Rate - Speculation' Relationship? Evidence from G7 in the Pre- and Post-2008 Crisis

31 Pages Posted: 1 Sep 2016 Last revised: 8 Sep 2016

See all articles by Kui-Wai Li

Kui-Wai Li

City University of Hong Kong (CityU) - Department of Economics & Finance

Date Written: August 30, 2016

Abstract

The article revisits the IS-LM macroeconomic model by incorporating speculation into the investment function. The discussion is supported empirically by using data from the G7 countries to examine the different interest rate regimes in the pre- and post-2008 financial crisis. The estimation of an “anchor” interest rate provides a reference rate for the G7 countries. The empirical study is extended to examine if the three quantitative easing episodes in the US economy are effective. The paper concludes that the maintenance of a high and stable interest rate policy is needed for sustainable growth in the G7 countries.

Keywords: Financial crisis, quantitative easing, monetary policy, interest rate, G7, quantitative easing

JEL Classification: E52

Suggested Citation

Li, Kui-Wai, Is There an 'Interest Rate - Speculation' Relationship? Evidence from G7 in the Pre- and Post-2008 Crisis (August 30, 2016). Applied Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2832513 or http://dx.doi.org/10.2139/ssrn.2832513

Kui-Wai Li (Contact Author)

City University of Hong Kong (CityU) - Department of Economics & Finance ( email )

Hong Kong

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